Second Marriage Estate Planning Issues In Indiana
A second marriage could be a godsend for you particularly when you compare that marriage to your first one. However, estate planning for your second marriage is often more complicated than your first marriage especially if one or both of you have children from a prior marriage. Hawkins Elder Law provides this brief rundown of some second marriage issues and what you could do if you need to update your estate plan.
Disinheriting Second Spouse Will Not Work Absent A Pre-Nup (And Sometimes A Post-Nup)
Under Indiana law, your second or subsequent spouse is entitled to a portion of your assets unless you have a valid pre-nuptual agreement in which your fiancé basically waives inheritance rights. Put more simply, without this type of agreement, you cannot disinherit your spouse in Indiana. Rather, if you have children from a prior marriage but do not have children with your spouse, then your spouse would be entitled to one-third of your net personal estate, and a quarter of the value of your real property less encumbrances or liens. However, if you have children from a prior marriage and also have children with your spouse, then your spouse will be entitled to half of your net personal and real estate through the elective share. Keep in mind that even if you leave your spouse something in your will, they could actually forego taking those assets in lieu of the elective share – so you can’t just give your spouse your favorite shirt and call it a day.
Congress included a provision in the Employee Retirement Income Security Act of 1974 (ERISA) that prevents someone from disinheriting a spouse from a 401(k) or other similar employer-sponsored retirement plan without the spouse’s consent. Your fiancé’s signature on a prenuptial agreement cannot directly waive rights in an ERISA-governed retirement plan through an employer because a fiancé is not a spouse. So, it is important to include retirement plan language in a pre-nuptial agreement that requires each person to sign a post-nuptial agreement after the wedding so each spouse can preserve independent control over their federally-regulated retirement benefits.
Second Marriages Can Create Problems For Your Children From A Prior Marriage
When you get married again, you might be inclined to make your spouse your beneficiary of everything – that is until you realize that if you do, your children from your prior marriage might get nothing. This is because in many cases, naming your spouse as your primary beneficiary typically entitles that spouse to the entirety of your assets.
While your surviving spouse might have a healthy relationship with your children from a prior marriage, this does not mean that your spouse will provide any benefit to them whatsoever. Your spouse may have children of their own from a prior marriage. It is not beyond the realm of possibility then that your spouse will favor their own children and see that they – and not your children – receive what is left of their inheritance at their death. Further, if you leave everything to your surviving spouse, they could act in an irresponsible or wasteful fashion with assets, leaving nothing for your children as a result. Your spouse could even intend to provide for your children but simply forget to make your children the beneficiary of their inherited assets. Don’t let any of these situations happen to you.
Marital Trusts To The Rescue
If you are in a second marriage but one or both of you have children from a prior marriage, then there is a way for you and your spouse to provide for each other while ensuring that your respective children are cared for: a marital trust. A trust is basically an arrangement where you select a person known as a trustee (e.g. your surviving spouse) to administer and distribute your assets to one or more of your beneficiaries such as your surviving spouse, children or even your favorite charity.
Of the few types of marital trusts, one in particular provides for the most control in second marriage situations: the QTIP trust. In this case, your trust provides income to your surviving spouse each year; however, you still get to control what happens to assets that are left over when your spouse dies, meaning that your surviving spouse cannot change your beneficiaries because your spouse is not the true owner of the property. Note that the QTIP trust generally has to be set up so that your spouse receives income for life from the trust; however, your spouse does not have control over the principal, so they cannot just transfer the entirety of the assets to their new spouse.
To the extent that you have children from your prior marriage and children with your spouse, you might be inclined to give your spouse more control over the trust than what a QTIP provides. In this case, you could consider other marital trusts including providing your spouse a power of appointment which permits your spouse to change the beneficiary or otherwise take income and principal from the trust during their life. Of course, there are ways to limit the power of appointment that you provide to your spouse.
There are several additional benefits of a marital trust. For one, it allows you to pass assets to your spouse or your children, or both, without going through probate – a court-supervised process for the administration and distribution of assets in your estate at your death.
Secondly, a marital trust can be an effective way for you and your spouse to avoid all or a portion of estate taxes. In fact, with proper estate tax planning, you and your surviving spouse could collectively shield up to $23,160,000.00 in 2020.
Thirdly, a marital trust can be set up so that if your surviving spouse remarries, then your assets can go to your children or another beneficiary instead of your spouse’s new spouse. Finally, marital trusts can provide your surviving spouse and your children legal protection from their creditors. This is possible because distributions could be made at the discretion of a trustee, and if that trustee is not your surviving spouse or children at the time, then they would not have control over the assets to provide to creditors or those with judgements against them.
There are different kinds of marital trusts for different situations. One of the most common kinds of marital trusts is part of a person’s revocable trust (sometimes called a “living trust”). However, if a married couple is concerned about long-term care asset protection, the couple may need to make marital trusts as parts of their last wills and testaments.
What Is Right For Me?
With proper planning, you can ensure that your surviving spouse is cared for while also protecting the interests of your children from a prior marriage or the interests of your other beneficiaries. Although marital trust planning might be a bit more complex when it comes to second marriages, it could be just the thing that you need for yourself and your family. Rest assured, an experienced estate planning attorney can help you decide which is best for your situation. Hawkins Elder Law has decades of experience helping clients with estate plans that are tailored to their needs and which provide for the effective management of their assets. Founders Jennifer J. Hawkins and Jeff R. Hawkins are Board Certified Indiana Trust and Estate Lawyers, certified by the Trust and Estate Specialty Board. Reach out to Hawkins Elder Law today by calling (812) 268-8777 or by contacting us online.
About the Authors
Jeff R. Hawkins and Jennifer J. Hawkins co-author the Hawkins Elder Law blog with Thomas E. Hynes, a lawyer who is admitted in Pennsylvania, New Jersey and Florida with a background in estate planning and elder law.
Jeff and Jennifer Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers. They are also active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois.
Jeff is a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation. He is also a member of the Illinois State Bar Association and he served as the 2014-15 President of the Indiana State Bar Association.
Hawkins Elder Law is one of the few elder law firms that Martindale-HubbellTM has rated AV Preeminent, with both of the firm’s lawyers (Jeff Hawkins and Jennifer Hawkins) also rated AV Preeminent.
More Information
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