After a divorce or the death of a spouse, a second marriage is an exhilarating new start. However, joining two active lives, especially when one or both spouses have children, may come with complications. One important consideration is how to combine your current financial lives. That’s why blended family wills, trusts, and thoughtful estate planning are essential.
According to Bowling Green State University research, most remarriages (63%) create blended families with at least one partner having a child from a previous relationship. When creating an estate plan, a blended family includes unique challenges. For example, many overlook changing beneficiary designations from a previous spouse to their new one or forget to update their will.
Estate planning for second marriages aims to protect your current and future assets while alleviating misunderstandings and potential family conflicts over financial matters.
What is fair in a second marriage and estate planning?
There is not a one-size-fits-all “estate plan second marriage.” What’s “fair” differs from family to family (and occasionally, from family member to family member). Estate planning attorneys must navigate the sometimes-tricky blended family dynamics and both spouses’ past and future considerations to create a custom solution that balances the needs of the new family.
When considering how to divide assets in a blended family, some questions include:
- Will you combine your assets, or will you continue to hold some assets individually?
- Are there assets that need to be retitled in both of your names, such as a home, vacation house, or bank accounts, or do you intend to keep some assets separate?
- Do one or both partners have debts that they bring to the relationship?
- Do you have current estate planning documents, such as a Last Will and Testament, medical directives, powers of attorney, etc., that need to be updated?
- What assets will be left to the current children?
- Do you plan to have children together, and if so, what assets should pass on to them?
- Will you establish a joint trust, or if you have different goals or distinct assets, will you each create separate trusts?
- Are other estate planning tools necessary, such as one or more trusts, medical directives, powers of attorney, etc.?
- How will you establish and manage your new financial plan?
As you and your partner answer these questions, it is essential to clearly communicate, not just with one another but with every family member impacted by these decisions. It can help to hold a family meeting (or several family meetings) where everyone involved can express their expectations and concerns. Some of these discussions may be difficult, but establishing an open dialogue should help avoid (or mitigate) confusion, hurt feelings, and disputes now and in the future.
Estate planning blended families
Identifying and documenting assets
Every effective estate plan begins by identifying and documenting assets. Your assets include real estate, financial accounts, retirement assets, business interests, personal property, and all other significant holdings. Since both partners bring assets from previous relationships, a thorough examination is essential. Documenting these assets not only aids in creating a comprehensive estate plan but also ensures there are no oversights that might lead to unintended consequences.
In any marriage, the documentation process is generally a collaboration between both partners, and this is even more important when estate planning for blended families.
Discussing the distribution of assets
One of the challenges of estate planning for blended families is determining the distribution of current and future assets among one another, children from previous marriages, and potential children from the current marriage. As mentioned, an open and honest discussion of expectations, concerns, and individual preferences can help mitigate current conflicts and avoid potential disagreements down the road.
When determining asset distribution, remember that monetary value is not the only consideration. There are likely items with a sentimental value that may outweigh their financial worth. Often, some of the most disruptive conflicts between family members occur over an emotional attachment. Understanding the significance of specific items can lead to thoughtful decisions and hopefully a sense of fairness about their distribution.
One way blended family estate planning in Washington differs from most states is that Washington is a community property state. In community property states, all assets and debts acquired by either spouse during a marriage are shared equally, regardless of which spouse earned or obtained them. When one spouse passes away, the surviving spouse retains half of the community property, and the remaining half is dispersed according to the deceased spouse’s wishes. Some assets that fall under the community property Washington state law include:
- Income earned while married.
- Real estate (except for a shared home).
- Personal property, such as cars, furniture, art, jewelry, etc.
- Savings accounts.
- Retirement accounts.
- Debts acquired while married.
It is possible to enter a marriage with personal property or savings and keep it separate from community property if the assets remain in one person’s name and are separated from joint accounts. Before embarking on a second marriage estate plan, ensure each partner understands if some property or savings are to be kept separate from the community estate.
Last Will for blended family estate planning
Creating a Last Will and Testament is essential to any estate plan. A will can help blended families directly address the complicated dynamics that often accompany those relationships. By including tactics to resolve disputes and providing clarity on specific decisions, blended family wills can help minimize potential conflicts.
You can also use a will to appoint guardians to care for and raise minor children. Before selecting a potential guardian, be sure to discuss your expectations for the role with the potential guardian and ensure they are willing and able to perform it.
The one thing a will cannot do is let your beneficiaries skip probate. Probate is the legal process of transferring titles and assets out of the name of someone who passed away and into the name of their beneficiaries. In Washington state, assets usually take a year to pass through probate.
Estates worth less than $100,000 usually do not need to be probated. For estates valued over $100,000, probate avoidance is accomplished by planning for each asset, such as your home and your retirement and investment accounts. Through estate planning, one of the most effective ways to avoid the probate process is to create a .
Trusts for blended family estate planning
In addition to bypassing the probate process, when estate planning for second marriages, utilizing trusts is one of the best ways to ensure that assets are distributed according to each spouse’s wishes. A trust is a legal document that dictates how and when to transfer assets to beneficiaries or charities. Establishing a trust has many benefits. While the person who began the trust (known as the grantor) is alive, the assets held by the trust remain available to them. After they die, the assets skip the probate process and pass to their beneficiaries as designated.
When estate planning for blended families, here are a few frequently used trusts.
Revocable living trust
Most blended family estate plans begin with a revocable living trust. A revocable trust means that, even though the trust is the legal owner of the assets, the grantor retains control of everything in the trust during their life. Revocable trusts are flexible and can be dissolved anytime while the grantor is alive. Another benefit of a revocable living trust is that it can hold different types of sub-trusts.
It is also possible for married couples to create a joint revocable trust, where both spouses have access to the possessions held in the trust. Once one spouse dies, depending on the trust’s terms, the surviving spouse can control the trust fully, or for blended families or specific tax or asset protection reasons, their authority may be minimized. Regardless of the specific terms, the surviving spouse typically earns income from a credit shelter trust and can access the principal of the credit shelter trust if it is used for health, education, maintenance, and support (HEMS) purposes.
Qualified terminable interest property (QTIP) trust
A QTIP trust is the most popular and flexible tool for blended family planning. A QTIP trust ensures that the money of one spouse passes to that spouse’s children and is not diverted after their death. It allows one spouse to provide income for the surviving spouse and then direct the remaining trust assets to specific heirs. This can help parties take full advantage of the marital deduction while controlling the ultimate distribution of assets.
The way a QTIP trust works is that, once one spouse dies, the surviving spouse is entitled to receive income generated by the trust assets during their lifetime, ensuring that the surviving spouse has financial support. However, the principal or original assets placed in the trust are preserved for the ultimate beneficiaries. Once both spouses pass away, the remaining trust assets are distributed according to the trust’s terms.
Credit shelter trust
Also known as an AB trust or bypass trust, a credit shelter trust allows both spouses to use the (in 2023) $2.193 million Washington state estate tax exemption amount, essentially doubling their exemption amount to $4.386 million. A credit shelter trust activates after one spouse dies and is funded by that person’s entire estate or a portion of it as outlined in the trust agreement. The surviving spouse has some access to these assets, again defined by the trust agreement.
Irrevocable life insurance trust (ILIT)
An irrevocable trust means that, after creating the trust, the grantor has no control or access to the assets, and its terms and conditions are fixed and cannot be changed. An ILIT holds a life insurance policy on the grantor. Because the trust owns the policy, the proceeds are typically not taxed as part of the grantor’s estate. An ILIT can hold either an “individual” or “second to die” (also known as a “joint and survivor”) life insurance policy. The primary purpose of an ILIT is to minimize the estate tax for people that exceed the $2.193 million Washington state exemption (or $4.386 million for those utilizing a credit shelter trust).
This irrevocable trust transfers assets to grandchildren or later generations tax-free (beneficiaries must be at least 37.5 years younger than the grantor). Because a generation-skipping trust avoids estate taxes that would apply if the next generation inherited them, these trusts are a wealth-preservation tool.
What is a second husband, or what is a second wife entitled to after a spouse’s death or a divorce?
After a divorce or death of a spouse, in Washington state, a surviving spouse is entitled to half of the community property acquired during the marriage. Washington is a “no-fault” divorce state, which means a couple can end a marriage by stating that no one is to blame or guilty of misconduct that led to the marriage’s conclusion.
Ultimately, what a surviving spouse is entitled to is largely predicated on whether the couple created an estate plan. The surviving spouse is always entitled to their half of the community property (just like all community property states). However, what happens to the other half depends on the deceased spouse’s wishes and if they created trusts and other crucial estate planning documents.
If you’d like to learn more about estate planning for second marriages or have other estate planning questions, please reach out to Harbor Law Firm. We make the estate planning process as simple and stress-free as possible. Along the way, we’ll answer any questions you may have, such as “How to set up a trust?”
Our services include the following:
- Knowledgeable guidance customized to your specific circumstances and goals.
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