Estate planning for a second marriage or blended family is very common in Los Angeles and throughout California. The goal is to ensure your estate plan or family trust is flexible enough to adapt to your future needs, while protecting the assets you’ve worked hard to acquire before entering your second marriage. Here’s a simple guide, with answers to common questions.
How do I create an estate plan?
An estate plan for a second marriage is structured similarly to an estate plan for a first marriage. However, the big difference is including an entire section that shows your intent for your current spouse as well as any obligations to your prior spouse. The basics of creating any estate plan are the following:
Asset Accounting
How much are all your assets worth? Write it down on a provided Worksheet.
Determine your goal and needs
What’s the goal of your estate plan? Some people want to give everything to their children. Others want to create a trust that will pay their children monthly distributions, and do so for generations to come.
Retain an estate planning attorney
Now that you have a general idea of your asset value and goals, it’s time to meet with and choose an estate attorney.
Create Wills or Trusts
Your estate attorney will work with you to create a solid estate plan that includes a living trust, Pour Over Will and the other documents you need.
Selecting Fiduciaries and Trustees
It’s your job to recommend responsible people to manage your estate. If you don’t have friends or family members you trust, you can name a private fiduciary or bank trust department to serve as the Trustee and Executor.
Power of Attorney, Conservatorship, Guardianship
In addition to naming someone the Trustee of your living trust and Executor of your will, you will appoint an Agent for your Durable Power of Attorney over decisions, if you are incapacitated, for assets outside of the living trust, e.g., social security, medical insurance, life insurance, etc.. The Durable Power of Attorney is valid only while you are alive.
Health Care Documents
Also, you will need to appoint a health care agent to handle heath care decisions while you are alive, if you cannot make them for yourself. You need an Advance Health Care Directive, a HIPAA (for release of medical records) and a Living Will (to advise your doctors, etc. that you do not wish to be kept alive through artificial means).
Inform Fiduciaries and Trustees
At this point, it’s time to inform fiduciaries that they have been given responsibilities in your estate. We recommend you speak with them, and follow-up with a letter of responsiblities.
Funeral Planning
As things are wrapping up, why not take the burden of funeral planning off your family’s list.
Schedule Periodic Reviews
A will or living trust is a legally binding document. However, your finances and relationships change over time. It’s a good idea to update your estate plan regularly.
How do I create an estate plan for my second marriage or blended family?
The big difference in an estate plan for a second marriage or blended family is making specific provisions for new spouses and children, ex-spouses and children and step-children. Generally, things have gotten a little more complicated since the first marriage. Maybe the divorce wasn’t amicable, or there are lingering divorce settlement issues. It’s best to settle some of these by clearly showing and stating your intent.
Legally Disinherit Ex-Spouse
Legally disinherit your ex-spouse if you feel they have received a fair divorce settlement, and you don’t intend to leave them any additional inheritance. While most of the loose ends are probably addressed in the divorce agreement, you can further reduce the risk of future litigation by showing your intent to fully disinherit them. You will contractually disinherit them in your will and living trust.
Plan for stepchildren
California intestate succession laws are different for biological children and stepchildren. In fact, stepchildren receive nothing via intestacy. So, if you want to leave them nothing, make it clear by stating so in your will or trust. Conversely, if you’d like to leave them an inheritance, make it clear in your will. And if you’d like your stepchildren to receive the same as your biological children, consider legally adopting them. An adopted child is given equal inheritance as a biological child, per California intestacy laws.
Inform Ex-Spouse and Stepchildren by letter
You could send letters to your ex-spouse and stepchildren, informing them of your estate plans for them–especially if you intend to leave them nothing. While this is an uncomfortable discussion, it greatly reduces the risk of them contesting or disputing your will or trust after your death.
What is fair in a second marriage estate plan?
Being fair is a common concern in second marriage estate plans. Rest assured, every client we’ve ever worked with, wants to be fair. However, they also want to limit the risk of an angry ex-spouse or distant stepchild contesting their family trust after death. We consider both those things very “fair” and reasonable.
Here are things we see clients wanting to be “fair” about, and how they’re addressed:
Biological Children vs Stepchildren
Generally, we see biological children receiving much more inheritance than stepchildren. It’s common for biological children to receive property, businesses, and value assets — whereas stepchildren frequently only receive a small cash inheritance or trust distribution.
Ex-Spouses
Generally, ex-spouses receive nothing from a second marriage estate plan. Why? Commonly, the ex-spouse has already agreed to a divorce settlement that provided them a fair share of the couple’s assets. The ex-spouse needs, and expects nothing more. That’s why we recommend formally disinheriting the ex-spouse.
Extended Ex-Family Members
What about the ex-parents-in-law? Maybe a small retirement home was purchased for them? Sometimes there is some co-owned community property remaining after a divorce. While we never recommend this route, it is more common than you might think. In these complicated situations, we recommend working with an experienced estate attorney who has negotiated these types of situations previously.
New Spouse
What about my separate property and my new spouse? This is very important planning and can be handled in a joint trust (where you and your wife are the trustees in charge of the assets) that keeps separate property separate or in a separate property trust (where you are the only trustee and in charge). This is a decision to be made after discussing this with an estate attorney.
How do I create a family trust for a second marriage or blended family?
We recommend that you create a family trust for a second marriage working with an experienced estate planning attorney in your county of residence–so that they’re presumably familiar with your local county probate court. While you can create a will or trust yourself using an online tool it is highly discouraged. However, for estates with real property or assets worth $1MM or more, we highly recommend the services of an experienced estate attorney. With high-value estates, there is significant risk of litigation, will contests, or trust disputes after your death. A solid estate plan, and following all the steps to clarify your intent (while alive), will greatly reduce the risk and efficacy of estate conflicts after your death, ensuring your heirs and beneficiaries get what you intend.
Do children of first and second marriages get different inheritances?
It depends. Often, all biological children are treated similarly, whether from a first or second marriage. In some cases, we see step-children treated similarly. However, it’s just as common to see stepchildren receiving a different inheritance, or distribution from a family trust — versus biological children.
Do stepchildren and adopted children get different inheritances?
Yes. State intestate succession laws treat adopted children as biological children, whereas stepchildren are treated differently. However, you can specify the same or different inheritance or distribution amounts in your estate plan and family trust — whether you legally adopt your stepchildren, or not.
Are California Inheritance Laws different for second marriages?
Generally, no. California inheritance laws refer to a present spouse, whether a first marriage, second marriage, third marriage, etc. However, the complications arise in regard to the divorce settlements.
How do I protect my children’s inheritance in a second marriage?
A major concern for many parent’s is protecting the inheritances for children from a first marriage. Parents are worried that children from a first marriage are at risk of losing their rightful inheritance, should their new spouse make poor plans or attempt to take their assets.
You should worry. This is a very real problem, primarily because your second spouse has more California intestate succession rights than any of your children. For example, if you were to get married for a second time without a will, trust, nor prenuptial agreement, your second wife would be entitled to 50% of your community property earned during your second marriage, while your children from your first marriage would also be entitled to 50% after your death. So, if you have five children from your first marriage, they would each receive 10% of your assets, while your second wife would be entitled to 50% of your assets. All of this can be changed by the terms of your revocable trust.
As you can see, this may warrant a prenuptial agreement, postnuptial agreement, or estate plan agreed to by yourself and your second spouse–while also protecting your children’s inheritances via an irrevocable trust.
What are typical second marriage inheritance issues?
The most common problem we see is keeping separate property as your separate property. Often, there is no prenuptial but you have separate property from before the second marriage. Separate property can be protected both with joint trusts and with separate property trusts. To protect yourself and your assets from this problem, we recommend making these decisions after consultation with an estate attorney.
Are there inheritance taxes in a second marriage?
Yes. Inheritance taxes are applicable to any estate, trust, and will. For 2020, the total non-taxable estate inheritance limit is about $11.4 million for an individual, and about $23 million for couples. So, if your estate is valued at $23 million, you can distribute all these assets to heirs and beneficiaries without paying any inheritance or estate taxes. If your estate is worth over $23 million, then the federal estate tax can be as high as forty per cent.
Estate and gift tax planning requires the assistance of your CPA and estate planning attorney. Most people with substantial assets see the necessity of obtaining the best help available to ensure their assets will be protected and will be distributed to their heirs or charitable recipients in the manner they want.
Should I disinherit my former spouse from a first marriage?
Yes, if possible. While your ex-spouse may have inheritance rights based on your divorce settlement, and/or intestate succession laws, we generally recommend that you also have your ex-spouse sign a disinheritance agreement. This agreement isn’t intended to change any settlement agreements. It’s purely designed to limit the risk of trust contests and disputes, in the future. If a Disinheritance Agreement has been signed, it clearly shows that your ex-spouse was aware of, and in agreement with, your estate plan and clear intent. We recognise that this is not always possible to obtain.
What’s best: An estate plan or prenuptial agreement?
An estate plan and prenuptial agreement are very different things. An estate plan outlines your intent for your assets after your death. A prenuptial agreement is generally intended primarily to protect the assets you have before entering a marriage, and the assets you earn during the marriage, in the event of a divorce (plus provisions for the event of your death.)
However, a postnuptial agreement can be drafted in conjunction with an estate plan. A postnuptial agreement is similar to a prenuptial agreement, but it is created after spouses are already married. Postnuptial agreements require the same full disclosure of assets and debts as with a prenuptial and both parties should be represented by separate counsel. It is a second layer of planning over and above the estate plan.
Can two different trusts hold a title, due to a second marriage?
Two different trusts can hold or share a title. Generally, this is due to separate trusts managed by married spouses, or separate trusts owned by divorced couples. Example: if a couple owns a vacation home, then gets divorced, they may choose to share the ownership of the vacation home, with each owning half. Then, those two halves are each part of their own individual trusts.
Upon a second marriage, the spouse may then put that “half vacation home” asset into a new trust that is managed by the spouse (and perhaps their new second spouse). If either of the spouses wishes to sell the vacation home, to get the proceeds of their half, they may have the right to do so, via a partition action — even if their ex-spouse does not wish to sell the property.
What’s the cost of creating a family trust in a second marriage?
The cost of creating a family trust for a second marriage can vary widely, depending on the value of the estate, number of estate assets, and types of estate assets. For example at Hall Doyon Law Group, PC, we provide a complimentary meeting with the client and determine at that meeting how many hours the estate planning process will take. Often, we are able to quote a flat fee for the legal work. Law firms’ fees vary substantially based upon the type of firm, the complexity of the estate and the experience of the attorney involved.
How much does an estate planning attorney cost for a second marriage?
As wealth increases, individuals tend to own a larger variety of assets, e.g., businesses, multiple real estate properties, art, etc. Then, adding the costs of additional planning around first and second marriages as well as children from separate marriages, can be significant. If your asset mix is simpler or the family structure is not complicated, then costs will remain lower.
Do I need an estate planning attorney near me?
We recommend working with an estate planning attorney in the county that you live. Why? Well, in the event of your death, the attorney will be familiar with the real estate laws as well as the court nearby. And, if there’s a probate or a trust or estate contest after your death, it will also be handled in your county probate court. For those reasons, it’s best to work with an experienced estate planning attorney familiar with your local county probate court, probate court judges, and local court processes.
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About Hall Doyon Law Group, PC
Located in Santa Monica, Jane Beaumont Hall handles Probate, Estate Planning, Wills, Trusts, Business and Tax Planning, and Mediation. Dedicated to the highest level of service, she brings experience as a business and a former “high asset” family law litigator to her estate planning, probate and trust practice. She handles a variety of complex estate and tax issues. As a mediator, and having handled hundreds of mediations, her negotiation skills assist families to resolve their challenging issues and reach an agreement. Visit us today at https://halldoyon.com