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Funding in Second Marriages
In General
Bloodline Protection
Providing for
the Economic Needs of a New Spouse
Minor Children of the
Current Marriage
Maintaining
the Integrity of Prenuptial Agreements
Maintaining the
Integrity of Divorce Decrees
Addressing Tax Ramifications
Disposition of Assets
Conclusion
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
In General: Funding
in second marriage situations present some unique issues that need to be
addressed candidly, yet tempered with understanding and compassion.
Estate planning for someone in a second marriage presents some special
funding considerations that should be properly addressed by a qualified
estate planning attorney. This legal bulletin will identify
planning issues that you should consult your estate planning attorney
about.
CAUTION:
Because of the delicate planning complications of second marriage
scenarios, we strongly recommend that you seek the counsel of
your estate planning attorney to address the unique needs of your personal
situation.
Bloodline Protection:
Many families in second marriage situations have children from their
prior marriage. Additionally, it is not uncommon that a substantial
amount of a client's estate was created during a prior marriage.
Often, it is the intent of the parent to ensure that the children from
that marriage inherit the assets. Accordingly, these motivations may
be reflected in the trust document in the form of a specific
distribution. Thus, it will be important to make certain that the
correct assets are funded to the appropriate trust.
NOTE: An estate planning attorney with trust funding experience can address any
"bloodline protection" issues and advise you how to fund your
assets to meet your planning goals.
Providing
for the Economic Needs of a New Spouse: When two people enter a second
marriage, they often will have a substantial difference in their respective
financial assets. This difference can result in different financial needs
during retirement years. Thus, couples in a second marriage will often
have to prioritize a desire for "bloodline protection" (assets left to
children from previous relationship) against a moral obligation to provide for
the future financial needs of the new spouse. These counseling issues
should be addressed by your estate planning attorney during the estate plan
design session and reflected in the terms of each spouse's trust.
Additionally, the allocation of assets during trust funding may also be impacted
by the clients' goals.
CAUTION:
Be certain to discuss economic needs of a new spouse with your estate planning
attorney prior to embarking on the funding your trust.
Minor
Children of the Current Marriage: If there are minor children from the
current marriage, one of the primary concerns of the couple will most
likely be to address the needs of the minor children. Thus, a couple
may prefer to subordinate their goals of providing for adult children from
a prior marriage to the more immediate needs of their minor
children. CAUTION: For
guidance in planning for minor children or children from different
marriages, we strongly recommend that you seek the counsel of your estate
planning attorney.
Maintaining
the Integrity of Prenuptial Agreements: Some clients in second marriage
situations will have entered into a prenuptial agreement that can contain a
number of restrictions which may have a substantial impact on the funding of the
trust. Prenuptial agreements are utilized for the purposes of
predetermining how assets will be divided in the event of a termination of the
marriage and, more importantly, for defining what rights each spouse will have
in the other spouse's estate upon death.
Some prenuptial agreements
include a limitation on a right to inherit, the creation of a right to inherit
after a period of time, or a pre-agreed manner of division of assets in the
event of a subsequent divorce. How the trust is funded may frustrate or
even circumvent the provisions contained in the prenuptial agreement.
Thus, there is no substitute for a thorough review of the prenuptial agreement
by your attorney prior to embarking on executing and funding your trust(s).
CAUTION: Before
funding your trust(s), be certain to have your attorney review your prenuptial
agreement and provide guidance as to how your trust(s) should be
funded.
Maintaining
the Integrity of Divorce Decrees: A client who was previously divorced
may be obligated to follow the terms of a binding divorce decree. A
common restriction found in many divorce decrees will require a client to
maintain a life insurance policy which names minor children as a
beneficiary. Although the primary objective of such a provision is
to ensure that sufficient assets are available to provide for future
economic needs of minor children, most divorce courts overlook the probate
ramifications of such a restriction. State law will control as to
whether the ownership or beneficiary designation of an insurance policy
can be changed under such circumstances. CAUTION:
Because of the legal implications of divorce decrees, be certain to have
your attorney review your divorce decree before embarking on funding your trust(s).
Addressing
Tax Ramifications: As outlined in the sections above, clients in second
marriage situations may have a different set of planning objectives than clients
in a first marriage. These objectives may necessitate funding the trust(s)
in a manner where the spouses' estates are not equalized and, consequently, may
subject them to adverse estate tax consequences.
CAUTION:
When you make any decision about how you want to leave your assets, you need to
make an informed decision about how to reconcile competing planning
issues. Accordingly, should this situation arise, your estate planning
attorney can outline potential tax ramifications with the you and help you
decide which planning strategies best meet your goals and priorities. We
cannot over emphasize the importance of consulting an estate planning attorney
when funding a trust in second marriage situations.
Disposition
of Assets: It is not uncommon to find spouses coming into second marriage
situations with both separate assets and assets titled jointly with their new
spouse. As a result, there is often some disparity in the size of the
assets that each spouse holds. Regardless of whether the spouses maintain
their assets in separate or joint ownership, a candid discussion needs to take
place as to where you want the assets to pass on their death.
NOTE:
How the assets are funded will impact on how the assets are distributed after
your death(s). It is important to discuss these delicate issues with your
estate planning attorney prior to embarking on the funding of your trust(s).
Conclusion: As
outlined above, second marriage situations present a host of additional
planning issues that your estate planning attorney should counsel with you
about. Most of the issues will likely be addressed during a
counseling session between you and your spouse and your
attorney. It is important that you discuss these matters
openly and honestly, with the understanding that these issues impact
greatly on the attorney's advice and planning strategies. Thus, in
second marriage situations, it vital that you maintain a candid, strong
line of communication between you, your spouse, and your estate planning
attorney. Only then will your goals and priorities become fully
realized in your estate plan.
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