Maintaining a Delicate Balance — The Second Estate Plan for the Second Marriage

Estate Planner Jul-Aug 1997

Estate planning is more than merely arranging to dispose of money and property — it involves people, with all their emotions, virtues, failings and idiosyncrasies. Nowhere is this more evident than in estate planning for the second marriage, particularly when children from a prior marriage are involved.

The objective of your estate plan is an orderly administration and disposition of your estate. The last thing you want to do is create family issues, hurt feelings or conflicts between your current spouse and your children from a prior marriage. Unfortunately, resentment and jealousy over the terms of an estate plan are not unusual. However, if you consider all of the issues now, you can reduce conflicts after your death and help ensure your estate plan will be carried out as you wish.

Marital Trusts To Defer Estate Tax

A marital trust provides cash flow to a surviving spouse during his or her lifetime and defers estate tax until the spouse’s death. But, it has drawbacks in the context of a second marriage:

  • If your spouse is close to the age of your children from a prior marriage, your children may have to wait until old age to enjoy their inheritance.
  • If your spouse has the right to convert non-income-producing property into income-producing property, he or she may sell a family business or other non-income-producing property to the detriment of your children.
  • If the children are the remainder beneficiaries, conflict over investment decisions, such as how much income will be generated by the trust for distribution to your spouse, may occur.

Trustees and Executors

Your fiduciaries may need the skills of a tightrope walker to balance the wants and needs of your children and your second spouse. Besides investment decisions, your executors and trustees also will make property and tax elections, and funding allocation decisions.
Unless your spouse will bring something valuable to the trusteeship, such as investment know-how or a good relationship with your children, you probably shouldn’t name him or her trustee or co-trustee. Also consider whether special provisions should be established for voting authority over closely held business interests, or business- or family-related real estate.

Trust Distributions

Under your estate plan, your second spouse generally will be a trust beneficiary and your children from a prior marriage will be either additional discretionary beneficiaries or remaindermen. You may want to limit the trustee’s discretion, especially if hostility or competition between your spouse and children may arise.
Examine the trustee’s standards for trust distributions to see if they are subject to abuse and to ensure adequate safeguards are in place. For example, mandatory income to the second spouse can reduce constant challenges to the trustee’s use of discretion and spell out specific standards covering when principal may be distributed. If principal distributions are to be limited to emergencies, say so.

Homes and Personal Effects

Make clear provisions if your second spouse is to continue to live in the family residence. This may take the form of a joint tenancy survivorship arrangement, a life estate, specific trust authority, or a lifetime gift through a qualified terminable interest property trust or qualified personal residence trust. Be specific about what costs related to the residence, if any, are your spouse’s obligations.

Do you want specific items from the household to either go to your children or stay with your second spouse? Be careful with the division of your personal effects. Decide how to allocate your art collection or antiques — a trust arrangement may be helpful.

Explain the Reasoning Behind Your Estate Plan

Some of the concerns relating to an estate plan for the second marriage may be addressed in a premarital agreement. A letter to your children and wife explaining your thought process also may reduce conflicts, but make it separate from your will to protect privacy. By addressing second marriage estate planning issues now, you can reduce potential conflicts after your death.


Have You Broken All Estate Plan Ties To Your Prior Spouse?

Double check that:

  • Your former spouse is not still named as the beneficiary of any of your life insurance policies, employee benefit plans or individual retirement accounts (IRAs);
  • Joint tenancies with your former spouse have been terminated;
  • Old powers of attorney have been revoked.