Remarrying In Midlife? Avoid Accidently Disinheriting Your Loved Ones
Gray Divorce
Today, more and more people are getting divorced in middle age and beyond. The trend of couples getting divorced after age 50 has grown so common, it earned its own nickname: “gray divorce.”
Roughly 1 in 4 divorces involve those over 50, and divorce rates for this demographic have doubled in the past 30 years, according to the study Gray Divorce Revolution. For those over age 65, divorce rates have tripled.
With divorce coming so late in life, the financial fallout can be quite devastating. Bloomberg.com found that the standard of living for women who divorce after age 50 drops by some 45%, while it falls roughly 21% for men. Given the significant decrease in income and the fact people are living longer than ever, it’s no surprise that many of these folks also choose to get remarried.
Blended Families
Many who remarry bring children from previous marriages into the new union creating “blended families.” Estate planning is particularly vital for blended families.
In fact, those with blended families who do not have a plan or have not updated their existing plan following remarriage are putting their families at major risk for accidentally disinheriting their loved ones. Such planning mistakes are almost always unintentional, but can lead to terrible consequences.
Here are 3 hypothetical scenarios to illustrate how a failure to update your estate plan after a midlife remarriage has the potential to accidently disinherit your closest family members and deplete your assets down to virtually nothing. We’ll also explain how these negative outcomes can be easily avoided using a variety of different planning solutions.
Scenario #1: Accidentally disinheriting your children from a previous marriage
John has two adult children, David and Alexis, from a prior marriage. He marries Moira, who has one adult child, Patrick. The blended family gets along well. John trusts that Moira will take care of his children in the event of his death, so in his estate plan, John leaves everything to Moira.
After just two years being married, John dies suddenly of a heart attack, and his nearly $1.4 million in assets go to Moira. Moira is extremely distraught following John’s death, and although she planned to update her plan to include David and Alexis, she never gets around to it, and dies just a year after John. Upon her death, all of the assets she brought into the marriage, along with all of John’s assets, pass to Moira’s son Patrick, while David and Alexis receive nothing.
John failed to ensure that David and Alexis were taken care of and Moira’s failure to include David and Alexis in her own plan resulted in them being entirely disinherited from their father’s estate.
John could have created a revocable living trust with directions to provide for Moira as well as David and Alexis. Alternatively, he could have created two separate trusts, one for Moira and one for his children, in which John specified exactly what assets each individual received. He could have also taken advantage of tax-free gifts to his two children during his lifetime.
If John had consulted an experienced estate planning attorney, he could have ensured that his children would have been taken care of in the manner he desired.
Scenario #2: Accidentally disinheriting your spouse
Mark was married to Gwen for 30 years, and they had three children together, all of whom are now adults. When their kids were young, Mark and Gwen both created wills, in which they named each other as their sole beneficiaries. When they were both in their 50s, and their kids had grown, Bob and Gwen divorced.
Several years later, at age 60, Bob married Veronica, a widow with no children of her own. Bob was very healthy, so he didn’t make updating his estate plan a priority. But within a year of his new marriage, Bob died suddenly in a car accident.
Bob’s estate plan, written several decades ago, leaves all of his assets to ex-wife Gwen, or, if she is not living at the time of his death, to his children. State law presumes that Gwen has predeceased Bob because they divorced after the will was enacted. Thus, all of Bob’s assets, including the house he and Veronica were living in, pass to his children. Veronica receives nothing unless she files a lawsuit to claim the share she is legally entitled to by our laws. In doing so, not only does she incur a lot of attorney fees, but her relationship with Bob’s children is destroyed.
Bob unintentionally disinherited Veronica and forced her into a precarious financial position just as she was entering retirement. If Bob had worked with an estate planning attorney to create a living trust, he could have arranged his assets so they would go to, and work for, exactly the people he wanted them to benefit.
For example, if he wanted the bulk of his assets to go to his children, but didn’t want to cause any disruption to Veronica’s life, he could have put his house, along with funds for its maintenance, into the trust for her benefit during her lifetime. He could have left the remainder of his assets to his kids, and they also would get the house and remaining funds in Veronica’s Trust at her death.
Scenario #3: Allowing Assets to Become Depleted
Steve is a divorcee in his early 60s with two adult children when he marries Susan. Steve has an estate valued at around $850,000, and he has told his kids that after he passes away, he hopes they will use the money that’s left to fund college accounts for their own children. But he also wants to ensure Susan is cared for, so he establishes a living trust in which he leaves all his assets to Susan, and upon her death, the remainder to his two children.
Yet, soon after Steve dies, Susan suffers a debilitating stroke. She requires round-the-clock in-home care for several decades, which is paid for by Steve’s trust. When she does pass away, the trust has been almost totally depleted, and Steve’s children inherit virtually nothing.
An experienced estate planning attorney like us could have helped Steve avoid this unfortunate outcome. Steve could have stipulated in his living trust that a certain portion of his assets must go to his children upon his death, while the remainder passed to Susan.
Additionally, Steve might have used life insurance to provide cash for Susan’s care upon his death, or he could have purchased a second-to-die life insurance policy for himself and Susan, naming his children as beneficiaries. Such a policy would ensure that regardless of the amount remaining in the trust, Steve’s children would receive an inheritance upon Susan’s death.
Bringing families together
Along with other major life events like births, deaths, and divorce, entering into a second (or more) marriage requires you to review and rework your estate plan. Updating your plan is exponentially more important when there are children involved in your new union. We regularly work with blended families, ensuring that you and your new spouse can clearly document your wishes to avoid any confusion or conflict over how the assets and legal agency will be passed on in the event of one spouse’s death or incapacity.
If you have a blended family, or are in the process of merging two families into one, contact us today to discuss all of your options.
