People tend to put off estate planning because no one likes to think about their own mortality. That makes sense, but more than 60 percent of Americans don't even have a will in place, and you should not be among them.
Sure, the estate planning process means you have to focus on some unpleasant scenarios. One of them might be the thought of your spouse remarrying after your death.
Still, it is important to plan for your surviving spouse and consider the possibility that remarriage could put your assets at risk. Unfortunately, many unscrupulous individuals take advantage of widows and widowers. In this article, we will discuss how to protect your estate from a predatory remarriage.
If you and your spouse have been married for many years and have children, you may have established reciprocal estate plans. Under these arrangements, a surviving spouse inherits all the assets of the spouse who passes away first. Then, the couple's combined assets go to their children after the surviving spouse's death.
You may have set up a bypass trust. A bypass trust is a legal arrangement with terms that allow a married couple to avoid or "bypass" paying estate tax on some assets after one spouse's death.
This process is straightforward unless the surviving spouse remarries. In that case, the new spouse may be able to become a legal heir to your surviving spouse's estate. This situation could threaten the assets that you intended for your children.
If you have a will that lays out your wishes for your estate's distribution, you may wonder why that document is not enough to protect your children. Unfortunately, a will cannot guarantee that your children will not be cut out of your estate if your spouse remarries.
None of us can predict the future, but careful estate planning is the best way you can protect your hard-earned assets and have the peace of mind that they will go to the people you love. A trust is a legal entity that allows a third party, known as the trustee, to hold your assets on the behalf of your beneficiaries.
Trusts can stipulate how and when your heirs receive your assets. A trust does not have to go through the lengthy and expensive legal process known as probate after your death.
A trust that is designed for estate planning for blended families is called a family wealth trust. A family wealth trust can be set up as part of a larger trust, or it can stand alone. Here are some of the key reasons why this solution will protect your children in the event you or your spouse have a predatory remarriage:
A family wealth trust offers other protective measures against predatory remarriage. If your spouse remarries without a signed prenuptial agreement, they lose access to the property held in the trust. This step will encourage your surviving spouse to sign a prenuptial agreement, which is another essential shield against a predatory individual should the remarriage fail.
If you own considerable assets, here's another plus of creating a family wealth trust. This type of trust qualifies for the marital deduction in your gross estate. This qualification means that any of your assets that are above the applicable exclusion can go into the family wealth trust, allowing you to avoid estate taxes.
As we said, estate planning leads you into some uncomfortable topics.
Here's another one. How can you make sure that your children do not squander their inheritance? This question may be weighing on your mind if you have a child that has problems with addictions or with failed relationships.
The answer to this dilemma is to create an investment tool called a spendthrift trust. A spendthrift trust places limits on a beneficiary's interest in the trust assets. Limitations might include paying only for your beneficiary's basic living expenses or making only limited payments directly to the beneficiary.
A spendthrift clause may be written to suit your individual circumstances. For example, the clause can include protection of the trust assets if your adult child goes through a divorce. In other words, it can offer your child protection from their own predatory marriage or remarriage.
Check out "Estate Planning For An Irresponsible Child" to learn more.
With proper planning, your family wealth trust can be written to help your family for decades. For example, you can stipulate in your trust that your assets be passed down to your grandchildren rather than your son-in-law or daughter-in-law. Assuming your trustee manages your assets well, this means that your hard-earned assets will benefit your family for generations to come.
Every state varies in what they allow in terms of trust provisions. Your attorney can help you understand the rules in your state.
Finally, despite the word "wealth" in its title, a family wealth trust is not just for the very rich. If you have a moderate estate, your family can still benefit from this vital estate planning tool.
Interested in learning more? Check out our article Getting Remarried? It’s Time to Update Your Personal Estate Plan.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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