How To Protect Your Children When You Marry Again
Without proper planning, there is no guarantee your children will receive anything.
Like most married people, it's likely you want your spouse to be financially secure if you die, and for your children to receive any remaining assets after your spouse dies.
But if you leave everything to your spouse, there is no guarantee your children will receive anything. Reason: Once you leave assets to your spouse, he or she can leave them to whomever he or she chooses.
This is a common problem in second marriages -- once one spouse dies, his or her children no longer communicate with the surviving spouse, who may remarry and leave the children of the deceased spouse out of the will.
Once you leave assets to a spouse, you can't prevent him or her from disinheriting your children. Indeed, the surviving spouse can change her will at any time and name anyone she choose as heirs -- and your children will have no way to stop her.
Lawyers usually advise a person contemplating marriage to do any or all of the following to protect their children. First, leave your estate to them outright and leave your spouse nothing. This may not work, however, because by law a spouse is entitled to a portion of your estate -- even if you leave him or her nothing. A second approach is to have your spouse sign a prenuptial agreement, waiving all rights to your estate. Neither of these solutions allow your spouse access to any of the money after your death.
A third idea is the Marital Trust, which is designed to protect children from the first marriage while allowing the surviving spouse access to the assets. The Marital Trust, also known as an "A/B" trust or Qualified Terminal Interest Property ("QTIP") Trust, guarantees the surviving spouse use of the money, since the trust assets cannot be distributed to the children from the first marriage until the surviving spouse dies. It also can protect the children by prohibiting the surviving spouse from changing the beneficiaries to other people.
Marital trusts must be written carefully to comply with federal estate tax laws. When written correctly, the surviving spouse receives all the income from the trust's property annually, and may receive principal as well. Therefore, assets placed in or held by the trust must be of the kind that can be sold. Also, trust assets can not be distributed to anyone else during the surviving spouse's lifetime.
Because of the spouse's broad access to the trust's assets, most lawyers recommend that a third party serve as trustee, or at a minimum, that another person serve as co-trustee with the spouse. This step can help prevent the surviving spouse from draining all the money held by the trust.
When the surviving spouse dies, the trust's remaining assets are distributed as the first spouse directed -- generally, to their own children. The trust therefore provides the best of both worlds for couples who have children from previous marriages: The surviving spouse is given full use and enjoyment of the assets, while the children from the first marriage are guaranteed the remaining trust monies when the surviving spouse dies.
Second marriages are one of the most critical areas to do proper estate planning, so you should seek the advice of a qualified estate planning attorney to learn more.
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Rescue Your Money, written by award-winning financial advisor Ric Edelman, is your personal investment recovery plan.
