In first marriages, the couple generally has the same goals when it comes to their estate planning: take care of the surviving spouse for as long as he or she lives, then whatever is left will go to the children. They may own many of their assets jointly and, at the death of the first spouse, more than likely everything will go to the surviving spouse just as they had planned.
But second marriages (after divorce or death of the first spouse) are different. There may be his children, her children and sometimes their children. Each spouse probably has assets they brought into this marriage, and they will want those to go to their own children after they die. At the same time, they will probably want to make sure the surviving spouse will have enough to live on. The estate planning methods relied upon in the first marriage probably will not work.
There are similar problems with beneficiary designations. Many people name their spouse as beneficiary of their life insurance, IRAs and other tax-deferred plans to provide for their spouse should they die first. But this can be a problem with second marriages because the spouse-beneficiary can name anyone he/she wants as new beneficiaries or to inherit the proceeds, bypassing the owner’s children. Promises may be made now to include them, but promises can be broken after one spouse is gone.
If each has considerable assets, it may be wise keep the assets and estate planning separate. If there will be a pre- or post-nuptial agreement, it should be reviewed by an estate planning attorney.
If one spouse has considerably fewer assets than the other, it is possible to provide for this spouse until death or remarriage, then have the remaining assets distributed to the children of the “wealthier” spouse. This is often accomplished through a life estate or QTIP trust.
Naming a trust as beneficiary for life insurance policies and tax-deferred plans is often a good choice for second marriages. This will allow the owner-spouse to keep control over how and to whom the proceeds are distributed. The surviving spouse can receive lifetime income, yet the owner-spouse can keep control (through the trust) over the rest of the proceeds. Keeping the proceeds in a trust will also protect them from irresponsible spending, creditors, predators, divorce, remarriage and even estate taxes, if done properly.
Be sure to include planning for disability and long-term care. If one spouse becomes ill and Medicaid assistance is needed, the combined assets of the couple will be considered “available assets” to pay for the care of the ill spouse. Long-term care insurance may be needed to protect the assets of one or both spouses.