I recently remarried. This is the second marriage for both me and my husband, and we each have a mixture of adult and young children from prior marriages. How can we provide for each other after one of us dies and protect our children’s inheritance?
Second marriages can be the cause of much strife and estate disputes when one of the spouses dies. This question is commonly faced by second-time spouses and their children. Ultimately, how to resolve the issue depends entirely on the particular circumstances of your situation and your objectives.
The best way to avoid a potential dispute is to create an estate plan that meets your specific objectives and goals and memorialize that estate plan in your Last Will and Testament and, if desired, living trust. You should carefully review all of your assets and the designated beneficiary forms to make sure that they are consistent with your wishes. The best way to avoid a future dispute is to discuss that plan with your children so that they understand your wishes and goals. This will help ensure that your assets pass to the people you intended them to while still providing for your spouse.
New York law allows you to disinherit your children but not your spouse. Not completely, at least. Under New York law, your spouse is entitled to inherit at least one-third of your estate and assets. This is known as a “Right of Election.” For elective share purposes, the gross estate can include both probate and non-probate assets that pass outside of your will, such as joint accounts or in-trust for accounts. (“Probate” assets are assets that are transferred through a Last Will and Testament, and are left to the individuals named in the Will. “Non-probate” assets pass outside of the Will and are transferred to the individuals named on the beneficiary designation form, regardless of what the Will says.)
Even if you effectively disinherit your spouse by distributing probate and non-probate assets to your children during your lifetime, the surviving spouse can, in some circumstances, still elect to receive one-third of those assets. Life insurance, however, is not subject to the elective share, although it remains part of one’s taxable estate.
Spouses can waive the “Right of Election” during their lifetimes either in a pre- or post-nuptial agreement or in a separate writing. During their lifetimes, many second spouses orally claim that they are not interested in their spouse’s assets or estate. However, if this is not memorialized in writing that satisfies strict legal requirements (i.e. notarized or a stricter form of notarization called an “acknowledgment”), such an oral claim is not enforceable.
Without a Waiver of the Right of Election, the surviving spouse might claim his one-third, despite the supposed “plan” that you both agreed on.
Another scenario is where the surviving children expect the surviving spouse of their natural parent to “do the right thing” when the decedent spouse left everything outright to the surviving spouse. This is not always possible, and, even if the surviving spouse is willing to do so, there may be adverse tax consequences to do so. A surviving spouse might have to use up her lifetime gift exemption in order to “do the right thing” and transfer assets to the children of the decedent spouse, which would disadvantage their own children by requiring them to pay taxes when the surviving spouse dies.
Living and testamentary trusts offer a solution to this quandary. By creating and funding a living (sometimes called an inter vivos) trust during your lifetime, or establishing one in your Last Will and Testament, you can provide for your second spouse during his life while ensuring that the principal passes to your own children at the death of the surviving spouse, and not to his own children through his estate.
For example, the first spouse to die can transfer the property to a bypass or Qualified Terminable Interest Property trust created through the Will or during his life. This trust allows the surviving spouse to use and enjoy property during his lifetime, but ensures that the property will pass to your children (or whomever you designate) at the death of your surviving spouse.
Alison Arden Besunder is the founding attorney of the Law Offices of Alison Arden Besunder P.C., where she assists new and not-so-new parents with their estate planning needs. Her firm assists clients in Manhattan, Brooklyn, Queens, and Nassau and Suffolk Counties. You can find Besunder on Twitter @estatetrustplan and on her website at www.besunderlaw.com.