What Is a SLAT in Estate Planning?

A SLAT is a type of irrevocable trust that can only be used by married couples for the benefit of a spouse, children, or other beneficiaries. Is a SLAT right for your family? The recent article titled “Should a SLAT Be Part Of Your Estate Planning?” from Forbes examines when a SLAT works, and when it doesn’t.

A SLAT works well while your spouse is alive. They have access to it and the assets it contains, since they are the beneficiary. As of this writing, up to $11,700,000 of assets can be removed from a taxable estate using your federal estate tax exemption, while your spouse continues to have access to the assets.

Sounds like a win-win, doesn’t it? However, there are drawbacks. If your spouse dies, you lose access to the assets. They will pass to the remainder beneficiaries in the trust, typically children, but they can be other beneficiaries of your choice.

If you and your spouse divorce, the spouse is still a beneficiary of the SLAT. Ask your estate planning attorney if this is something they can build into the SLAT but be mindful that if the attorney is representing both spouses for estate planning, there will be ethical considerations that could get tricky.

What about a SLAT for each spouse? If you and your spouse both establish SLATs to benefit each other, you run the risk of the “reciprocal trust doctrine.” The IRS could take the position that the trusts cancel each other out, and rule that the only reason for the SLAT was to remove taxable assets from your estate.

The SLATs need to be different from each other in more than a few ways. Your estate planning attorney will need to develop this with you. A few ways to structure two SLATs:

  • Create them at different times. The more time between their creation, the better.
  • Consider establishing the trusts in different states.
  • Have different trustees.
  • Vary the distribution rules for the surviving spouse and the distribution rules upon the death of the second spouse. For instance, one spouse’s trust could hold the assets in lifetime trusts for the children, while the other spouse’s trust could terminate, and assets be distributed to the children when they reach age 40.

The SLAT is an especially useful way to address tax liability. If you have not maxed out lifetime gifts in 2020, now is the time to start this process. December 2025, when the federal estate tax exemption reverts back to $5 million, will be here faster than you think. If the country needs to find revenue quickly, that change may come even sooner. Tax reform that occurs in 2021 is not likely to be retroactive to January 1, 2021, but there are no guarantees.

Reference: Forbes (Feb. 16, 2021) “Should a SLAT Be Part Of Your Estate Planning?”

Some States Have No Estate or Inheritance Taxes

The District of Columbia already moved to reduce its exemption from $5.67 million in 2020 to $4 million for individuals who die on or after Jan. 1, 2021. A resident with a taxable estate of $10 million living in the District of Columbia will owe nearly $1 million in state estate tax, says the article “State Death Tax Hikes Loom: Where Not To Die In 2021” from Forbes. It won’t be the last change in state death taxes.

Seventeen states and D.C. levy their own inheritance or estate taxes in addition to the federal estate tax, which as of this writing is so high that it effects very few Americans. In 2021, the federal estate tax exemption is $11.7 million per person. In 2026, it will drop back to $5 million per person, with adjustments for inflation. However, that is only if nothing changes.

President Joseph Biden has already called for the federal estate tax to return to the 2009 level of $3.5 million per person. The increased tax revenue purportedly would be used to pay for the costs of fighting the “pandemic” and the “infrastructure improvements” he plans, but many believe such a move would potentially destroy family businesses, farms and ranches that drive and feed the economy in the first place. If that were not troubling enough, President Biden has threatened to eliminate the step up in basis on appreciated assets at death.

This change at the federal level is likely to push changes at the state level. States that don’t have a death tax may look at adding one as a means of increasing revenue, meaning that tax planning as a part of estate planning will become important in the near future.

States with high estate tax exemptions could reduce their state exemptions to the federal exemption, adding to the state’s income and making things simpler. Right now, there is a disconnect between the federal and the state tax exemptions, which leads to considerable confusion.

Five states have made changes in 2021, in a variety of forms. Vermont has increased the estate tax exemption from $4.25 million in 2020 to $5 million in 2021, after sitting at $2.75 million from 2011 to 2019.

Connecticut’s estate tax exemption had been $2 million for more than ten years, but in 2021 it will be $7.1 million. Connecticut has many millionaires that the state does not wish to scare away, so the Nutmeg state is keeping a $15 million cap, which would be the tax due on an estate of about $129 million.

Three states increased their exemptions because of inflation. Maine has slightly increased its exemption because of inflation to $5.9 million, up from $5.8 million in 2020. Rhode Island is at $1,595.156 in 2021, up from $1,579,922 in 2020. In New York, the exemption amount increased to $5.93 million in 2021, from $5.85 million in 2020.

The overall trend in the recent past had been towards reducing or eliminating state estate taxes. In 2018, New Jersey dropped the estate tax, but kept an inheritance tax. In 2019, Maryland added a portability provision to its estate tax, so a surviving spouse may carry over the unused predeceased spouse’s exemption amount. Most states do not have a portability provision.

Another way to grab revenue is targeting the richest estate with rate hikes, which is what Hawaii did. As of January 1, 2020, Hawaii boosted its state estate tax on estates valued at more than $10 million to 20%.

If you live in or plan to move to a state where there are state death taxes, talk with your estate planner to create a flexible estate plan that will address the current and future changes in the federal or state exemptions. Some strategies could include the use of disclaimer trusts or other estate planning techniques. While you’re at it, keep an eye on the state’s legislature for what they’re planning.

Reference: Forbes (Jan. 15, 2021) “State Death Tax Hikes Loom: Where Not To Die In 2021”

Do We Need Estate Planning?

Estate planning is not just about making a will, nor is it just for people who live in mansions. Estate planning is best described in the title of this article “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan” from Business Insider. Estate planning is a plan for the future, for you, your spouse and those you love.

There are a number of reasons for estate planning:

  • Avoiding paying more federal and state taxes than necessary
  • Ensuring that assets are distributed as you want
  • Naming the people you choose for your own care, if you become incapacitated; and/or
  • Naming the people you choose to care for your minor children, if you and your spouse left them orphaned.

If that sounds like a lot to accomplish, it is. However, with the help of a trusted estate planning attorney, an estate plan can provide you with the peace of mind that comes with having all of the above.

If those decisions and designations are not made by you while you are alive and legally competent, the state law and the courts will determine who will get your assets, raise your children and how much your estate will pay in death taxes to state and federal governments. You can avoid that with an estate plan.

Here are the five key things about estate planning:

It’s more than a will. The estate plan includes creating Durable Powers of Attorney to appoint individuals who will make medical and/or financial decisions, if you are not able to do so. The estate plan also contains Medical Directives to communicate your wishes about what kind of care you do or do not want, if you are so sick you cannot do so for yourself. The estate plan is where you can create Trusts to control how property passes from one person or one generation to the next.

Estate planning saves time, money, and angst. If you have a surviving spouse, they are usually the ones who serve as your executor. However, if you do not and if you do not have an estate plan, the court names a public administrator to distribute assets according to state law. While this is happening, no one can access your assets. There’s a lot of paperwork and a lot of legal fees. With a will, you name an executor who will take care of and gain access to most, if not all, of your assets and administer them according to your instructions.

Estate planning includes being sure that investment and retirement accounts with a beneficiary designation have been completed. If you don’t name a beneficiary, the asset goes through the probate court. If you fail to update your beneficiary designations, your ex or a person from your past may end up with your biggest assets.

Estate planning is also tax planning. While federal taxes only impact the very wealthy right now, that is likely to change in the future. States also have estate taxes and inheritance taxes of their own, at considerably lower exemption levels than federal taxes. If you wish your heirs to receive more of your money than the government, tax planning should be part of your estate plan.

The estate plan is also used to protect minor children. No one expects to die prematurely, and no one expects that two spouses with young children will die. However, it does happen, and if there is no will in place, then the court makes all the decisions: who will raise your children, and where, how their upbringing will be financed, or, if there are no available family members, if the children should become wards of the state and enter the foster care system. That’s probably not what you want.

The estate plan includes the identification of the person(s) you want to raise your children, and who will be in charge of the assets left in trust for the children, like proceeds from a life insurance policy. This can be the same person, but often the financial and child-rearing roles are divided between two trustworthy people. Naming an alternate for each position is also a good idea, just in case the primary people cannot serve.

Estate planning, finally, also takes care of you while you are living, with a power of attorney and healthcare proxy. That way someone you know, and trust can step in, if you are unable to take care of your legal and financial affairs.

Once your estate plan is in place, remember that it is like your home: it needs to be updated every three or four years, or when there are big changes to tax law or in your life.

Reference: Business Insider (Jan. 14, 2021) “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan”

What States Make You Pay an Inheritance Tax?

Let’s start with defining “inheritance tax.” The answer depends on the laws of each state, so you’ll need to speak with an estate planning attorney to learn exactly how your inheritance will be taxed, says the article “States with Inheritance Tax” from yahoo! finance. There are six states that still have inheritance taxes: Iowa, Kentucky, Nebraska, New Jersey, Maryland and Pennsylvania.

In Iowa, you’ll need to pay an inheritance tax within nine months after the person dies, and the amount will depend upon how you are related to the decedent.

In Kentucky, spouse, parents, children, siblings and half-siblings do not have to pay inheritance taxes. Others need to act within 18 months after death but may be eligible for a 5% discount, if they make the payment within 9 months.

Timeframes are different county-by-county in Maryland, and the Registrar of Wills of the county where the decedent lived, or owned property determines when the taxes are due.

Only a spouse is exempt from inheritance taxes in Nebraska, and it has to be paid with a year of the decedent’s passing.

New Jersey gets very complicated, with a large number of people being exempted, as well as qualified religious institutions and charitable organizations.

In Pennsylvania, rates range from 4.5% to 15%, depending upon the relationship to the decedent. There’s a 5% discount if the tax is paid within three months of the death, otherwise the tax must be paid within nine months of the death.

As you can tell, there are many variations, from who is exempt to how much is paid. Pennsylvania exempts transfers to spouses and charities, but also to children under 21 years old. If one sibling is 20 and the other is 22, the older sibling would have to pay inheritance tax, but the younger sibling does not.

There’s also a difference as to which property is subject to inheritance taxes. In Nebraska, the first $40,000 inherited is exempt. Pennsylvania exempts certain transfers of farmland and agricultural property. All six exempt life insurance proceeds when they are paid to a named beneficiary, but if the policies are paid to the estate in Iowa, the proceeds are subject to inheritance tax.

Note that an inheritance tax is different than an estate tax. Both taxes are paid upon death, but the difference is in who pays the tax. For an inheritance tax, the tax is paid by heirs and the tax rate is determined by the beneficiary’s relationship to the deceased.

Estate tax is paid by the estate itself before any assets are distributed to beneficiaries. Estate taxes are the same, regardless of who the heirs are.

There are twelve states and the District of Columbia (Washington D.C.) that have their own estate taxes (in addition to the federal estate tax). Note that Maryland has an inheritance, state and federal estate taxes. The rest of the states with an estate tax are Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Washington and Vermont.

The large variations on estate and inheritance taxes are another reason why it is so important to work with an experienced estate planning lawyer who knows the estate laws in your state.

Reference: yahoo! finance (Jan. 6, 2021) “States with Inheritance Tax”

How Can Blended Families Use Estate Planning to Protect All of the Siblings?

If two adult children in a blended family receive a lot more financial help from their parent and stepparents than other children, there may be expectations that the parent’s estate plan will be structured to address any unequal distributions. This unique circumstance requires a unique solution, as explained in the article “Estate Planning: A Trust Can Be Used to Protect Blended Families” from The Daily Sentinel. Blended families in which adult children and stepchildren have grandchildren also require unique estate planning.

Blended families face the question of what happens if one parent dies and the surviving step parent remarries. If the deceased spouse’s estate was given to the surviving step parent, will those assets be used to benefit the deceased spouse’s children, or will the new spouse and their children be the sole beneficiaries?

In a perfect world, all children would be treated equally, and assets would flow to the right heirs.  However, that does not always happen. There are many cases where the best of intentions is clear to all, but the death of the first spouse in a blended marriage change everything.

Other events occur that change how the deceased’s estate is distributed. If the surviving step-spouse suffers from Alzheimer’s or experiences another serious disease, their judgement may become impaired.

All of these are risks that can be avoided, if proper estate planning is done by both parents while they are still well and living. Chief among these is a trust,  a simple will does not provide the level of control of assets needed in this situation. Don’t leave this to chance—there’s no way to know how things will work out.

A trust can be created, so the spouse will have access to assets while they are living. When they pass, the remainder of the trust can be distributed to the children.

If a family that has helped out two children more than others, as mentioned above, the relationships between the siblings that took time to establish need to be addressed, while the parents are still living. This can be done with a gifting strategy, where children who felt their needs were being overlooked may receive gifts of any size that might be appropriate, to stem any feelings of resentment.

That is not to say that parents need to use their estate to satisfy their children’s expectations. However, in the case of the family above, it is a reasonable solution for that particular family and their dynamics.

A good estate plan addresses the parent’s needs and takes the children’s needs into consideration. Every parent needs to address their children’s unique needs and be able to distinguish their needs from wants. A gifting strategy, trusts and other estate planning tools can be explored in a consultation with an experienced estate planning attorney, who creates estate plans specific to the unique needs of each family.

Reference: The Daily Sentinel (Dec. 16, 2020) “Estate Planning: A Trust Can Be Used to Protect Blended Families”

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”

Is Probate Required If There Is a Surviving Spouse?

Probate, also called “estate administration,” is the management and final settlement of a deceased person’s estate. It is conducted by an executor, also known as a personal representative, who is nominated in the will and approved by the court. Estate administration needs to be done when there are assets subject to probate, regardless of whether there is a will, says the article “Probating your spouse’s will” from The Huntsville Item.

Probate is the formal process of administering a person’s estate. In the absence of a will, probate also establishes heirship. In some regions, this is a quick and easy process, while in others it is a lengthy, complex and expensive process. The complexity depends upon the size and value of the estate, whether a proper estate plan was prepared by the decedent prior to death and if there are family members or others who might contest the will.

Family dynamics can cause a tremendous amount of complications and delays, especially if the family has blended children from prior marriages or if a child has predeceased their parents.

There are some exceptions, when the estate is extremely small and when probate is not required. However, in most cases, it is required.

A recent District Court case ruled that a will not admitted to probate is not effective for proving title and thereby ownership, to real estate. A title company was sued for defamation after the title company issued a title report that included the statement that the decedent had died intestate, that is, without a will.

The decedent’s son, who was her executor, sued the title company because his mother did indeed have a will and the title report was defamatory. The court rejected this theory, and the case was brought to the Appellate Court to seek relief for the family. The Appellate Court ruled that until a will has been admitted to probate, it is not effective for the purpose of proving title to real property.

If a person owns real estate, they must have an estate plan to ensure that their property can be successfully transferred to heirs. When there is no estate plan, heirs find out how big a problem this can be when someone decides they want to sell the property or divide it up among family members.

Problems also arise when the family finds that they must pay taxes on the property or that there are expenses that must be paid to maintain the property. Without a will, the disposition of the property is determined by the state’s estate law. Things can become complicated quickly, when there is no will.

If the deceased spouse has children from outside the most recent marriage, those children may have rights to the property and end up owning a portion of the property along with the surviving spouse. However, neither the children nor the surviving spouse can sell the property without each other’s approval. This is a common occurrence.

There are also limitations as to how probate can be used to distribute and manage an estate. In some states, the time limit is four years from the date of death.

An estate planning attorney can help the family move through the probate process more efficiently when there is no will. A better situation would be for the family to speak with their parents about having a will and estate plan created before it’s too late.

Reference: The Huntsville Item (Nov. 22, 2020) “Probating your spouse’s will”

How Do Joint Accounts and Beneficiary Designations Work in Estate Planning?

Most people think a will is the most important tool in the estate planning toolbox, but in many instances, it is not even used. Assets in the will go through probate, and wills control assets in your name only. If you don’t have a will, your state laws will provide one under its law of Intestate Succession. Instead of making a will, some people just name their spouses or children on joint accounts, says the article “Protecting Your Assets: Joint Accounts and Beneficiary Designations” from The Street. however, that can lead to big problems.

Let’s look at a typical family. They own a home, an IRA, life insurance and some bank and investment accounts. They have wills that leave everything to each other, and equally to their children upon their deaths. If a child predeceases them, they want the child’s share to go to the child’s children (their grandchildren). This is called per stirpes, meaning it goes to the next generation. The husband and wife have also listed each other as joint owners and beneficiaries and then listed their children as contingent beneficiaries on all financial accounts.

When the husband dies, all his assets go to his wife. When she dies, she had named her living children as beneficiaries. If she signed a quit claim deed putting the children’s names on the house before she died, the will and probate may be bypassed altogether.

Sounds like a great plan, doesn’t it? Except like most things that sound too good to be true, this one is not a great plan. Here’s what can and very often does go wrong.

Let’s say a daughter inherits a bank account and is sued, files for bankruptcy or divorces. Her entire inheritance is vulnerable, with no protection at all.

What if you say in your will that you want everything to go equally to all three children when you die, but you only put one son as a beneficiary on your accounts? When you die, only one son inherits everything. The will does not supersede the beneficiary designation. If the son wants to keep all your assets, he can, no matter what he may have promised you and his siblings.

If the wife dies first and the husband remarries, he may want to leave everything to his new wife. He’s hoping that when she dies, she’ll distribute the assets from his first marriage to his children. He even has a will and changes the beneficiary designations on his investment accounts to make sure that happens. However, when he dies, she owns the accounts and can name whoever she wants to inherit those accounts. She has the legal right to cut out anyone she wants. The husband may have avoided probate, but his children are left with no inheritance.

We all like to believe that our spouses and children will do the right thing upon our death, but the only way to ensure that this will happen is to have an estate plan created using trusts and other planning strategies. Avoiding probate may be a popular theme but making sure your assets go where you want to them to is far more important than avoiding probate. Meet with an estate planning attorney to ensure that your family is protected, the right way.

Reference: The Street (Oct. 30, 2020) “Protecting Your Assets: Joint Accounts and Beneficiary Designations”

Does Your Inherited House have a Mortgage?

When a loved one dies, there are always questions about wills, inheritances and how to manage all of their legal and financial affairs. It’s worse if there’s no will and no estate planning has been done. This recent Bankrate article, “Does the home you inherited include a mortgage?,” says that things can get even more complicated, when there’s a mortgage on the inherited house.

Heirs often inherit the family home. However, if it comes with a mortgage, you’ll want to work with an estate planning attorney. If there are family members who could become troublesome, if houses are located in different states or if there’s a lot of money in the estate, it’s better to have the help of an experienced professional.

Death does not mean the mortgage goes away. Heirs need to decide how to manage the loan payments, even if their plan is to sell the house. If there are missing payments, there may be penalties added onto the late payment. Worse, you may not know about the mortgage until after a few payments have gone unpaid.

Heirs do have several options:

If the plan is for the heirs to move into the home, they may be able to assume the mortgage and continue paying it. There is also the option to do a cash-out refinance and pay that way.

If you plan to sell the home, which might make it easier if no one in the family wants to live in the home, paying off the mortgage by using the proceeds from the sale is usually the way to go. If there is enough money in the estate account to pay the mortgage while the home is on the market, that money will come out of everyone’s share. Here again, the help of an estate planning attorney will be valuable.

Heirs have certain leverage, when dealing with a mortgage bank in an estate situation. There are certain protections available that will give you some leeway as the estate is settling. More good news—the chance of owing federal estate taxes right now is pretty small. An estate must be worth at least $11.58 million, before the federal estate tax is due.

There are still 17 states and Washington D.C. that will want payment of a state estate tax, an inheritance tax or both. There also might be capital gains tax liability from the sale of the home.

If you decide to take over the loan, the lender should be willing to work with you. The law allows heirs to assume a loan, especially when the transfer of property is to a relative, because the borrower has died. Surviving spouses have special protections to ensure that they can keep an inherited home, as long as they can afford it. In many states, this is done by holding title by “tenancy by the entireties” or “community property with right of survivorship.”

When there is a reverse mortgage on the property, options include paying off or refinancing the balance and keeping the home, selling the home for at least 95% of the appraised value, or agreeing to a deed in lieu of foreclosure. There is a window of time for the balance to be repaid, which may be extended, if the heir is actively engaged with the lender to pay the debt. However, if a year goes by and the reverse mortgage is not paid off, the lender must begin the foreclosure process.

Nothing changes if the heir is a surviving spouse, but if the borrower who dies had an unmarried partner, they have limited options, unless they are on the loan.

What if the mortgage is “underwater,” meaning that the value of the inherited home is less than the outstanding mortgage debt? If the mortgage is a non-recourse loan, meaning the borrower does not have to pay more than the value of the home, then the lender has few options outside of foreclosure. This is also true with a reverse mortgage. Heirs are fully protected, if the home isn’t worth enough to pay off the entire balance.

If there is no will, things get extremely complicated. Contact an estate planning attorney as soon as possible.

Reference: Bankrate (Oct. 22, 2020) “Does the home you inherited include a mortgage?”

Estate Planning for a Second Marriage and Blended Family

It takes a certain kind of courage to embark on second, third or even fourth marriages, even when there are no children from prior marriages. Regardless of how many times you walk down the aisle, the recent article “Establishing assets, goals when planning for a second marriage” from the Times Herald-Record advises couples to take care of the business side of their lives before saying “I do” again.

Full disclosure of each other’s assets, overall estate planning goals and plans for protecting assets from the cost of long-term care should happen before getting married. The discussion may not be easy, but it’s necessary: are they leaving assets to each other, or to children from a prior marriage? What if one wants to leave a substantial portion of their wealth to a charitable organization?

The first step recommended with remarriage is a prenuptial or prenup, a contract that the couple signs before getting married, to clarify what happens if they should divorce and what happens on death. The prenup typically lists all of each spouses’ assets and often a “Waiver of the Right of Election,” meaning they willingly give up any inheritance rights.

If the couple does not wish to have a prenup, they can use a Postnuptial Agreement (postnup). This document has the same intent and provisions as a prenup but is signed after they are legally wed. Over time, spouses may decide to leave assets to each other through trusts, owning assets together or naming each other as beneficiaries on various assets, including life insurance or investment accounts.

Without a pre-or postnup, assets will go to the surviving spouse upon death, with little or possibly nothing going to the children.

The couple should also talk about long-term care costs, which can decimate a family’s finances. Plan A is to have long-term care insurance. If either of the spouses has not secured this insurance and cannot get a policy, an alternate is to have their estate planning attorney create a Medicaid Asset Protection Trust (MAPT). Once assets have been inside the trust for five years for nursing home costs and two-and-a-half years for home care paid by Medicaid, they are protected from long-term care costs.

When applying for Medicaid, the assets of both spouses are at risk, regardless of pre- or postnup documents.

Discuss the use of trusts with your estate planning attorney. A will conveys property, but assets must go through probate, which can be costly, time-consuming and leave your assets open to court battles between heirs. Trusts avoid probate, maintain privacy and deflect family squabbles.

Creating a trust and placing the joint home and any assets, including cash and investments, inside the trust is a common estate planning strategy. When the first spouse dies, a co-trustee who serves with the surviving spouse can prevent the surviving spouse from changing the trust and by doing so, protect the children’s inheritance. Let’s say one of the couple suffers from dementia, remarries or is influenced by others—a new will could leave the children of the deceased spouse with nothing.

Many things can very easily go wrong in second marriages. Prior planning with an experienced estate planning attorney can protect the couple and their children and provide peace of mind for all concerned.

Reference: Times Herald-Record (Sep. 21, 2020) “Establishing assets, goals when planning for a second marriage”