Second Marriages — Unintentionally Disinheriting Your Own Family
June 1, 2016
This edition of the Koldin Report E-Newsletter reviews unforseen consequences in Second marriages where one side of the family unintentionally inherits everything. Past newsletters can be found on our website by clicking here.
Unintentionally Disinheriting One Side of the Family
It is not unusual for spouses to leave everything to each other and then to his/her own respective children. The following example illustrates:
Example 1: John and Sally are married for the second time. John’s Will leaves everything to Sally, if living, otherwise to John’s 3 children. Sally’s Will leaves everything to John, if living, otherwise to Sally’s 2 children.
In the above example, if John dies first, Sally’s 2 children will inherit all of the couple’s combined life savings. If Sally dies first, John’s 2 children will inherit all the assets. The unintended result of these Wills is that one side of the family is completely disinherited depending on which spouse dies first.
Leave to Both Sides of the Family in Both Wills
One solution is for John and Sally to leave everything to all the children in both of their Wills. The following example illustrates:
Example 2: John’s Will leaves everything to Sally, if living, otherwise ½ to John’s 3 children and ½ to Sally’s 2 children. Sally’s Will leaves everything to John, if living, otherwise ½ to John’s 3 children and ½ to Sally’s 2 children.
In Example 2, it doesn’t matter who dies first. All the children will inherit on the death of the 2nd spouse. However, Example 2 relies on the surviving spouse never changing his/her Will.
Risk: Surviving Spouse Can Later Disinherit Deceased Spouse’s Family
After John’s death, Sally might remarry again. Sally might stop having a loving relationship with John’s children. Sally might decide that she would rather leave everything to her new spouse or to her own children and leave nothing to John’s children.
One way John and Sally can guarantee that their own respective children inherit is by disinheriting each other and leave everything to their own children directly. John’s Will could leave everything to his 3 children and Sally’s Will could leave everything to her 2 children.
The problem with spouses disinheriting each other is that this could place the surviving spouse in a financial crisis. Spouses might want to provide for each other especially in second marriages of longer duration.
Solution: Use a Trust to Provide for Your Spouse
You can leave assets in a trust where your spouse would receive all of the income earned on trust assets, but the principal would remain in the trust. If you wish, you can also give your Trustees the discretion to provide principal to your spouse or to pay certain expenses for your spouse. Upon the death of your spouse, the balance would then go to your own children.
Example 3: John’s Will leaves everything in a Trust for Sally’s benefit. The terms of the Trust give Sally all income earned (interest and dividends). The Trust also says that the Trustees are to pay for all property taxes, insurance, and major repairs to the family home. The Trust also gives the Trustees discretion to use principal on other expenses for Sally’s benefit if the Trustees determine that her own funds are not sufficient. On Sally’s death, the remaining balance goes to John’s 3 children. Sally also has a Will with the same terms as John’s Will, but on her death, she leaves the remaining balance to her children.
Example 3 accomplishes the goals of providing for your spouse and also preserving the inheritance of your children. It is important that John and Sally each select Trustees that they are confident will carry out their wishes for when to provide for the spouse and when to preserve assets for the children. One problem with Example 3 is that Wills need to be probated and this requires time and legal fees. Another option to consider is for each spouse to establish his/her own Revocable or Irrevocable Living Trust. The beneficiary clause of each Living Trust can leave your assets into a Trust for your spouse on your death just like Example 3 above.
For a full discussion of Revocable Trusts and Irrevocable Trusts, please click here.
At the Koldin Law Center, P.C. with offices in Syracuse , New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. Our attorneys are available to discuss your estate planning options including reviewing your options to establish a Revocable Trust and/or an Irrevocable Trust.
There is something you can do.