Not only are people living longer these days, but there’s a growing trend of widows and widowers remarrying in their 60s, 70s and 80s. A remarriage late in life can bring happiness, but it can also create complexities for estate planning.
For most elderly people who remarry, the chief issue is that they want to look out for their adult children and make sure those children have an inheritance. Lack of estate planning can result in a new spouse receiving the assets that could have gone to adult children and grandchildren.
Here are some things to consider:
► In most states, a spouse is entitled to a certain percentage (usually a third) of the other spouse’s assets at death even if the other spouse has provided differently in a will. If you don’t want this to happen, the best way around it for your spouse to waive this right in a pre-nuptial or post-nuptial agreement.
A pre-nuptial agreement is good for other reasons, too, because it allows you and your spouse to specify exactly how your assets will be divided when one of you dies.
If you’re thinking of signing a pre-nuptial or post-nuptial agreement, don’t do so without having it reviewed by an attorney. There are many technical requirements for these agreements, and an attorney can make sure that the agreement is legally valid and that you’re not inadvertently giving up important rights. (And make sure you have your own attorney review it; don’t assume that the same attorney can fairly represent both you and the other spouse!)
► When a person dies, many retirement accounts automatically go to the person’s spouse, unless the spouse has signed a disclaimer. This is true even if the person’s will and pre-nuptial agreement state otherwise. Be sure you know where your retirement accounts will go if something happens to you.
► Many people who remarry later in life provide in their will that certain of their assets will go into a trust. The trust will pay income to their spouse for the rest of the spouse’s life, and when the spouse dies, the assets will go to their own children. This allows a person to take care of a spouse but also make sure that their own children ultimately receive an inheritance.
Oftentimes, such a trust is called a “Qualified Terminable Interest Property” trust, or QTIP. Another big advantage of a QTIP is that all the property in the trust is treated as having gone to your spouse for estate tax purposes, so there is no estate tax on the assets at the time of your death.
Think carefully about how you want the trust invested. Your spouse will likely want investments that generate income, while your children will favor growing the principal. If you don’t specify how the assets are to be invested, your spouse and your children might end up arguing about it. (A possible solution is to create a “unitrust” that will pay the spouse a percentage of the total assets each year – that way everyone benefits if the assets are appreciating.)
► While a QTIP can be a good idea, it might not be a good idea if you’re marrying someone considerably younger than yourself. If you’re 70 and you’re marrying a 50-year-old, then there’s a chance your new spouse will outlive your children and your children will never receive an inheritance. In such a case, it might be better to protect your children’s interest by buying a life insurance policy with your children (or a trust for them) as the beneficiary.
► Consider buying long-term care insurance. Generally, if one spouse requires expensive nursing home care, the other spouse is legally required to pay for it. And few things can drain a child’s potential inheritance faster than paying for a step-parent’s expensive medical care.