Senior Second Marriages and Estate Planning

For seniors enjoying the romance and vitality of an unexpected late-in-life engagement, congratulations! Love is a wonderful thing, at any age. However, anyone remarrying for the second, or even third time, needs to address their estate planning as well as financial plans for the future. Pre-wedding planning can make a huge difference later in life, advises a recent article from Seniors Matter titled “Your senior parent is getting remarried—just don’t ignore key areas.”

A careful review of your will, powers of attorney, healthcare proxy, living will and any other advance directives should be made. If you have new dependents, your estate planning attorney will help you figure out how your children from a prior marriage can be protected, while caring for new members of the family. Failing to adjust your estate plan could easily result in disinheriting your own offspring.

Deciding how to address finances is best done before you say, “I do.” If one partner has more assets than the other, or if one has more debts, there will be many issues to resolve. Will the partner with more assets want to help resolve the debts, or should the debts be cleared up before the wedding? How will bills be paid? If both partners own homes, where will the newlyweds live?

Do you need a prenuptial agreement? This document is especially important when there are significant assets owned by one or both partners. One function of a prenup is to prevent one partner from challenging the other person’s will and trusts. There are a number of trusts designed to protect loved ones including the new spouse, among them the Qualified Terminable Interest Property Trust, known as a QTIP. This trust provides support for the new spouse. When the spouse dies, the entire trust is transferred to the persons named in the trust, usually children from a first marriage.

Most estate planning attorneys recommend two separate wills for people who wed later in life. This makes distribution of assets easier. Don’t neglect updating Powers of Attorney and any health care documents.

Before walking down the aisle, make an inventory, if you don’t already have one, of all accounts with designated beneficiaries. This should include life insurance policies, pensions, IRAs, 401(k)s, investment accounts and any other property with a beneficiary designation. Make sure that the accounts reflect your current circumstances.

Sooner or later, one or both spouses may need long-term care. Do either of you have long-term care insurance? If one of you needed to go into a nursing home or have skilled care at home, how would you pay for it? An estate planning attorney can help you create a plan for the future, which is necessary regardless of how healthy you may be right now.

Once you are married, Social Security needs to be updated with your new marital status and any name change. If a parent marries after full retirement age and their new spouse’s benefit is higher than their own, they may be able to increase their benefits to 50% of the new spouse’s benefits. If they were receiving divorced spousal benefits, those will end. The same goes for survivor benefits, if the person marries before age 60. If they’re disabled, they may still receive those benefits after age 60.

Setting up an appointment with an estate planning attorney a few months before a senior wedding is a good idea for all concerned. It provides an opportunity to review important legal and financial matters, while giving both spouses time to focus on the “business” side of love.

Reference: Seniors Matter (April 29, 2022) “Your senior parent is getting remarried—just don’t ignore key areas”

Should a Husband and Wife have Separate Trusts?

The decision about separate or joint trusts is not as straightforward as you might think. Sometimes, there is an obvious need to keep things separate, according to the recent article “Joint Trusts or Separate Trusts: Advice for Married Couples” from Kiplinger. However, it is not always the case.

A revocable living trust is a popular way to pass assets to heirs. Assets titled in a revocable living trust don’t go through probate and information about the trust remains private. It is also a good way to plan for incapacity, avoid or reduce the likelihood of a death tax and make sure the right people inherit the trust.

There are advantages to Separate Trusts:

They offer better protection from creditors. When the first spouse dies, the deceased spouse’s trust becomes irrevocable, which makes it far more difficult for creditors to access, while the surviving spouse can still access funds.

If assets are going to non-spouse heirs, separate is better. If one spouse has children from a previous marriage and wants to provide for their spouse and their children, a qualified terminable interest property trust allows assets to be left for the surviving spouse, while the balance of funds are held in trust until the surviving spouse’s death. Then the funds are paid to the children from the previous marriage.

Reducing or eliminating the death tax with separate trusts. Unless the couple has an estate valued at more than $23.16 million in 2020 (or $23.4 million in 2021), they won’t have to worry about federal estate taxes. However, there are still a dozen states, plus the District of Columbia, with state estate taxes and half-dozen states with inheritance taxes. These estate tax exemptions are considerably lower than the federal exemption, and heirs could get stuck with the bill. Separate trusts as part of a credit shelter trust would let the couple double their estate tax exemption.

When is a Joint Trust Better?

If there are no creditor issues, both spouses want all assets to go to the surviving spouse and state estate tax and/or inheritance taxes aren’t an issue, then a joint trust could work better because:

Joint trusts are easier to fund and maintain. There is no worrying about having to equalize the trusts, or consider which one should be funded first, etc.

There is less work at tax time. The joint trust doesn’t become irrevocable, until both spouses have passed. Therefore, there is no need to file an extra trust tax return. With separate trusts, when the first spouse dies, their trust becomes irrevocable and a separate tax return must be filed every year.

Joint trusts are not subject to higher trust tax brackets, because they do not become irrevocable until the first spouse dies. However, any investment or interest income generated in an account titled in a deceased spouse’s trust, now irrevocable, will be subject to trust tax brackets. This will trigger higher taxes for the surviving spouse, if the income is not withdrawn by December 31 of each year.

In a joint trust, after the death of the first spouse, the surviving spouse has complete control of the assets. When separate trusts are used, the deceased spouses’ trust becomes irrevocable and the surviving spouse has limited control over assets.

Your estate planning attorney will be able to help you determine which is best for your situation. This is a complex topic, and this is just a brief introduction.

Reference: Kiplinger (Nov. 20, 2020) “Joint Trusts or Separate Trusts: Advice for Married Couples”