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Hooper Law Office,LLC Estate Planning Blog

Monday, August 24, 2015

What other protections do I need to consider in a second marriage?

There is no "one size fits all" set of estate planning protections that is appropriate for all people at all times. You are unique, your loved ones are unique, the assets you own are unique, and the goals you have for how you want to protect your loved ones and property are unique. The combination of all of these factors is why, if you are entering a second marriage, it is important to assemble your estate planning team of professionals (estate planning attorney, accountant, financial planner, and insurance professional) and discuss your goals with the team. This allows them to analyze your situation and advise you concerning the particular provisions your need to have in place for your personal situation. You should be prepared to review, discuss, and receive their counsel concerning the following: 

  • The assets owned by both you and your spouse;
  • Your respective investments philosophies;
  • A careful review of each spouse's beneficiary designations to make sure that outdated decisions will not cause unintended consequences;
  • The goals you and your new spouse are trying to accomplish for yourselves, for your children from previous marriages, and for any children of the new marriage;
  • The advisability of having a prenuptial or postnuptial agreement to classify your property;
  • The importance of having new heath care and financial powers of attorney to appoint appropriate individuals to carry our your directions;
  • An analysis of retirement plans and Social Security benefits to maximize available income for the two of you during your joint lifetimes and to provide for the surviving spouse;
  • How Family Trusts and QTIP (Qualified Terminable Interest Property)

Monday, August 17, 2015

How can I prevent these types of planning disasters?

 

We believe that the cornerstone of a good estate plan is a revocable living trust. A trust can help avoid the planning mistakes we have discussed. With a revocable living trust, one set of instructions will exist to control the distributions of all of your property. This is because the trust can be - when done correctly - both the owner of all of your property while you are alive (including your home, checking accounts, and investments accounts) and the beneficiary of your life insurance and retirement accounts. Since your trust will be both the owner and/or beneficiary of all of your property, you can be confident that all of your property will be distributed the way you want to those you want. 

Planning with a revocable living trust will give you the peace of mind of knowing that your desires will not be disrupted by the haphazard use of property titles and beneficiary designations that could otherwise leave your property to unintended heirs. Since all of your assets will be controlled by the instructions in your trust, your planning goals will be fully met. Your spouse and children will actually receive the portion of your estate that you want them to have. These and other protections are important when planning in a second marriage to protect both your new spouse and the children of your first marriage. 


Monday, August 10, 2015

What type of planning do I need to do?

The type of planning that you need to do depends on the goals that you want to accomplish. Joint tenancy ownership, payable on death designations (PODs), beneficiary designations, trusts, and wills are important tools that you can use to plan your estate. Whether or not any of these tools are right for you can be determined only after a careful analysis of all of your assets along with a thoughtful review of what you want done with each individual asset. Great caution is necessary because the improper use of any estate planning strategy can backfire and result in the disinheritance of your intended beneficiaries.  

For example, when entering a second marriage many couples what to satisfy the dual goals of protecting their new spouse while also leaving an inheritance for the children of their previous marriages. To accomplish this goal, they each sign new "I love you wills." These wills are often drafted to state that upon the death of either spouse, all  of their assets will be distributed first to the surviving spouse and then, when the second dies, to the children of the previous marriages. Although the couple thinks they have done a good job of planning their estates with wills, they have not! Planning with wills, without taking other precautions, is a big mistake for several reasons. 

First, unless all of the assets of each spouse are carefully analyzed, it is entirely possible that the surviving spouse will receive nothing from the "I love you will." This is because the will may fail to control the distribution of any property in an individual's estate. Instead, the entire estate may be distributed via beneficiary designations on life insurance policies and retirement accounts; payable on death (POD) or joint tenancy designations on savings and checking accounts; and joint tenancy designations on real estate, all of which override the will. If the first spouse to die failed to get around to removing the children of the previous marriage as the ones to receive all of his or her property through these types of transfers, the surviving spouse of the new marriage gets nothing because the will was meaningless!

A second planning mistake is much like the first, only this time it is the children who are disinherited. People who remarry usually want to protect their new spouse and still leave an inheritance to the children of the first marriage. The second marriage couple dutifully goes to their attorney to sign new wills. They are often drafted to leave half of the estate to the new spouse and the other half to the children of the previous marriage. Although they leave the attorney's office feeling proud and thinking that all of their loved ones are now protected, they are mistaken. 

Consider this scenario: The first parent dies and the children are dismayed to learn that in the intervening years, the parent's house, car, bank accounts, and investments accounts were all titled jointly with the stepparent. They further learn that the stepparent was named as the beneficiary of their parent's IRA and life insurance policy. Even though the will left one-half of the property to them, the children are effectively disinherited because of the improper use of joint tenancy and beneficiary designations. The stepparent gets it all - the children get nothing. 

This was the estate plan of Cinderella's father! Although Cinderella should have inherited at least part of her father's estate, everything, including the home, went to her stepmother. Good estate planning can avoid this type of tragedy. 

A third planning mistake occurs when a couple writes their wills to state that on the first spouse's death everything goes to the survivor and that on the second death everything is to be divided between the children of both spouses. The fault in this plan is that it assumes that there will be assets left to pass on after the second spouse's death. In reality, there might be nothing left to pass if the assets are all consumed by the surviving spouse due to medical expenses, nursing home costs, or other unforeseen circumstances. Even if there are assets left over, with "I love you wills" there is nothing to prevent the surviving spouse from rewriting his or her will after the first spouse dies and disinheriting the stepchildren. 

Good estate planning is needed to protect not only the inheritance you leave your spouse, but also the inheritance you want to ultimately leave to your children. An experienced estate planning attorney will draft what is needed to make sure that none of your loved ones suffer these planning disasters. 


Monday, August 3, 2015

Do I still need an estate plan if I have a prenuptial or postnuptial agreement in place?

Absolutely! Your prenuptial or postnuptial agreement merely gives you and your new spouse the right to separately control and plan for the distribution of your respective estates. You must still do the planning if you want to stay in control of your estate and have it distributed after your death according to your desires. 


Monday, July 27, 2015

Is it too late if we are already married?

Fortunately, it is not too late to do second marriage planning even after your wedding. As long as you and your spouse are in agreement, you can still plan the division of your property by jointly signing a postnuptial agreement. A postnuptial  agreement is the same as a prenuptial agreement, but it is signed after you are married. It is not unusual that couples  find it much more difficult to agree on property and estate planning issues after they say their vows. Once the glow of the honeymoon has faded, the sense of urgency is lost. To ensure you are able to reach an agreement, planning with a prenuptial agreement is preferable. 


Monday, July 20, 2015

Will my prenuptial agreement survive a legal challenge?

A great deal of thought and skill is required to draft a prenuptial agreement if it is to survive a legal challenge. If you want it to work, an attorney with the requisite expertise should prepare the agreement. This is definitely not the time to get a form off the Internet and attempt to do it yourself. It must be rock solid if you want it to survive a court challenge, because  a judge might rule that your entire prenuptial agreement is invalid if it fails to follow the letter of the law. The last thing you want is to have your prenuptial agreement thrown out of court because it did not meet all the technical legal requirements!


Monday, July 13, 2015

Do I really need a prenuptial agreement?

Yes. Although many couples might find it rather unromantic to discuss signing a prenuptial agreement, if either of you has been divorced, then you already know how important a prenuptial agreement can be. In the event the marriage does not work out, your prenuptial agreement may prevent you from losing your own property. The agreement will also give you the peace of mind of being able to create your own personal estate plan that leaves your property to the beneficiaries of your choice. A well-thought-out agreement will avoid misunderstandings and prevent problems from developing later.

Unfortunately, many couples avoid discussing a prenuptial agreement because they do not want to appear distrustful. A better approach is to go into a new marriage with a clear understanding of what belongs to each spouse and what will be jointly owned. For all these reasons, it is a good idea to have a well-drafted agreement in place before your wedding.


Monday, July 6, 2015

How do I plan for these challenges?

You and your future spouse should sign a prenuptial agreement that protects your rights to your property and clarifies your obligations to each other. The best time to plan for these challenges is before the wedding. 


Monday, June 29, 2015

What circumstances are unique to second marriages?

In most "first marriages" estate plans, the couple plans for the surviving spouse to have access to all of the assets at the death of the first spouse. Typically, the couple also wants the assets split equally among their children at the death of the surviving spouse, but such planning seldom meets the needs of "second marriage" families. A second marriage creates unique circumstances that require special planning. 

Here are just some of the special planning circumstances that confront many couples in a second marriage:

  • One spouse wants to keep property in his or her own name.
  • One spouse does not want to be responsible for the other's debts.
  • Each has differing investments philosophies.
  • They desire different beneficiaries for their life insurance policies, annuities, and retirement accounts.
  • They want their estate to be distributed to different beneficiaries (such as their respective children from their previous marriages, siblings, parents, or charities).
  • The difference in age between the children from the previous marriages and the children of the new marriage requires special planning for guardianships, college expenses, and the ultimate distribution of the inheritance. 

While these situations are common to most second marriages, every family is different and will have unique challenges that require special planning. 


Monday, June 22, 2015

What are some other reasons to leave assets in a Special Needs Trust?

As mentioned earlier, if you do not implement an estate plan that protects your child with special needs, a judge will impose a plan of his own choosing on the family. To determine whether the judge's plan is likely to be the one you would choose for your loved one, just ask yourself a few questions:

  • Will the judge appoint the trustee I would want to manage the assets I leave my loved one?
  • Will the judge's plan keep my child's financial and legal affairs private instead of making them a public record?
  • Will the judge's plan require that the assets I leave my loved one be distributed to my loved one for only the purposes I want, when I want, and how I want?
  • Will the judge's plan result in the least costs and delays to my family?

You simply cannot ensure that the decisions of some unknown judge sitting in some unknown courtroom at some unknown time in the future will decide things the same way you would. The truth of the matter is that the decisions of many judges would be exactly opposite of how you would conduct your own private affairs.

Unless you designate who will protect your child's assets, a judge will choose for you. The judge, due to open record laws, may allow anyone to rife through the court file and learn the size and extent of your child's assets. There is no guarantee that the judge's plan will provide the same lifestyle that you desire for your loved one. It can take years for cases to go through the stressful, expensive, and time-consuming court bureaucracy. 

If the above listing of the risks of leaving things in the hands of a judge were not bad enough, any plan created by a judge will be subject to the judge's "continuing jurisdiction" over the administration of your loved one's assets. This means that the person appointed by the judge to administer your child's assets must file financial reports with the judge every year for as long as your loved one lives. This not only imposes additional annual costs of administering the judge's plan (at your loved one's expense), but it places one more intrusive and disruptive burden on your loved one.

The judge's plan will also disqualify your loved one from receiving government benefits if your loved one is deemed to personally own the assets. A well-crafted Special Needs Trust written according to your instructions will protect the confidentiality of your loved one's private affairs and preserve your loved one's right to receive government benefits.

As seen, there are many challenges involved with planning for a loved one with special needs, but they are not insurmountable. With experienced counseling and good planning they can be overcome. If you want the peace of mind that comes from knowing you have done everything possible to protect your loved one, then a Special Needs Trust needs to be part of your comprehensive estate plan. 


Tuesday, June 16, 2015

Why bother with a trust when I can just give money to someone and tell them to use it for my loved one's care?

Giving money directly to someone else to care for your loved one (even to a trusted child or friend), instead of leaving the inheritance in a Special Needs Trust, has many hidden risks. These risks exist because when you give your assets to someone, they become the legal owner of them. This can have unfortunate consequences such as:

  • If that person becomes disabled, the law requires that the assets be spent on his or her care instead of on your loved one's care;
  • If that person dies, the law requires that the assets be distributed according to that person's estate plan;
  • If that person has financial difficulties, the assets might be lost to that person's creditors;
  • If that person goes through a divorce, the assets might be lost to an ex-spouse; and
  • If that person wants to, he can spend the assets how ever he wants (and not necessarily for your child's care) since legally the assets belong to him.

For all of these reason, and many others, protecting assets in a Special Needs Trust is much wiser than leaving them at risk as described above.


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