What's Fair? Estate Planning for Second Marriages and Blended Families

According to the U.S. Census Bureau, approximately 21% of recent marriages involve both spouses marrying for at least the second time. This means that about 1 out of every 5 marriages in the United States is a second marriage.

Estate planning for second marriages and blended families may look different than their single marriage counterparts. Join us as we dive deep into estate planning specifics unique to these family dynamics.

Estate Planning & Elder Law Attorney Bob Mannor sheds light on why it's crucial to have a detailed plan, not only in case a spouse has passed, but in case of illness and other hardships. We also highlight the perils of adding your children's names to your assets, using a real-life example of a family whose expectations and reality didn't match up due to an ill-conceived estate plan.

Moving onto asset distribution, we tackle the nuances of revocable living trusts and their importance in ensuring your spouse and children are well taken care of. We explore how these trusts can help you prepare for various future scenarios, possibly involving remarriage or undue influence. But our discussion doesn't stop there!

We also delve into the importance of planning for unexpected circumstances and how a trust can protect against the surviving spouse potentially depleting all assets. Learn how to maximize government benefits to cover care and set up a foolproof estate plan that provides the best chances of accessing these benefits. Join us for this insightful conversation!

Host Attorney Bob Mannor
Executive Producer Savannah Mektso

Transcript

Bob Mannor: 0:00

You're listening to Advice from your Advocates, a show where we provide elder law advice to professionals who work with the elderly and their families. Hi folks, this is a really interesting topic and something that a lot of folks don't actually give enough consideration to, and that is estate planning for second marriages. So one of the things that people think about sometimes is when we're talking about second marriages and they think about prenuptial agreements or those types of things, and that's certainly something to give some consideration to. But it goes a little deeper than that when it comes to second marriages. So it is something that if there is a second marriage, particularly if there's kids on both sides sometimes called a blended family then we really need to do very specific estate planning. Estate planning is basically essential at that point, because the default rules are going to cause all kinds of havoc and make sure that things will go wrong. If you don't have an estate plan and if you don't have one that specifically addresses what happens after the death of the first spouse and what happens after the death of the second spouse and what happens in between, then it's almost certainly going to go wrong. It's almost certainly not going to go to where do you expect it to go. So that's why this is such an important topic.

Bob Mannor: 1:21

So before we get any further, as always, we have a quick disclaimer, and the idea of a disclaimer is that we're going to give you good information here, but this is information only. This should not be used for your specific legal needs. If you have specific questions or specific legal needs, give us a call and we can talk about your specific answers, but don't rely on this for your specific needs when this is general information and not necessarily specific to you. So that's our general disclaimer. And then, of course, we always talk about a little bit about our law firm. So we do have a nationally respected law firm, something that I'm very proud of. We have lots of credentials and expertise among our members and particularly our attorneys. We actually have a nice following that the readers of our local paper has voted us the best law firm or favorite law firm in our area. For what is it? Eight years in a row now. So these are nice things. We're also all three of us are accredited to pursue claims through the Veterans Administration, so that we can help our veterans out.

Bob Mannor: 2:31

So let's get right into the topic. So I mentioned this a minute ago in the introduction, is that if you have a blended family, if it's as a second marriage, it is crucial, absolutely crucial, that we have an estate plan, because people don't think about it from the standpoint of looking over the horizon we always look for, okay, well, what's gonna happen next? Well, let's say that this is a second marriage, but you've been married 34 years. I mean, that's definitely a feasible option. This happens all the time, and so, for a second marriage, where you've been married for a very long time, a lot of times we don't even really think of it as anything different. But the reality is, law treats it differently. Okay, the law treats it differently. If it's a second marriage and you each have your own separate kids, you may even consider it that his kids are your kids and her kids are your kids and everybody's one big, happy family. But that's not how the law treats it. So it's very, very essential that we have a good estate plan, and a good estate plan that addresses this specifically, and so we're gonna get into some examples here.

Bob Mannor: 3:36

But one of the things that a lot of folks you know say well, instead of an estate plan, can I just put beneficiary designations on everything? Can I just do a ladybird deed or a quick claim deed and if you heard me speak before, you know that I'm not a big fan of that for estate planning, although certainly it's an acceptable option. It's better than putting your kids names on assets, which we don't want to ever do. We never recommend that you add your kids names to assets. That's always a bad idea. It almost always causes significant problems tax problems, gifting problems, medicaid problems, if we ever get sick All of these issues come up, and so we never want to have you add your kids names to things, particularly in a situation of a second marriage, and we say, oh well, I trust that kid Doesn't matter. We don't know what's gonna happen between now and then to them. They might die, they might get dementia, they might get sick, they might get a car accident, they might get sued. You know they might get divorced All of these things as to why you should never, ever, ever put your kids names on assets.

Bob Mannor: 4:38

But some people say, well, isn't it better than if I put beneficiary designations on everything? And the answer is yes, that's better. It's just not the best. It's better, it's just not the good answer. Okay, the good answer is that we have a plan for today, tomorrow, 20 years from now, 40 years from now. In other words, we have a plan, not necessarily after both of you die, but we have a plan for what happens after the first spouse dies. We have a plan for what happens during that time period where the second spouse is living and the first spouse has died, and we have a plan for what happens after the second spouse dies.

Bob Mannor: 5:11

And I was speaking to a family not too long ago and one of the spouses was very insistent. She says this is the way it's gonna work, this is what's gonna happen. Everything's gonna go to my spouse when I die, or go to me if my spouse dies, and then they're gonna hold it, they're gonna be able to live there, and then it's gonna go to all of the kids equally. And I said well, I've looked at your will and that's not what's going to happen. I've looked at your estate plan and thought about how it's going to happen. And they said well, that's what I want, though that's what it's going to happen. I said, no, you can, you can demand that all you want, you can say that all you want, but unless we have an estate plan, just putting, because what they had is they have beneficiary designations and they said, ok, well, I've listed my spouse on everything as my beneficiary. Well, what that means is you're cutting your kids out, because if your spouse lives for a month longer than you do, then everything's going to go to your spouse's kids and not to your kids, and your kids are going to be cut out completely.

Bob Mannor: 6:05

If you die first and you leave everything to your spouse without a clear plan in place, without a clear legal plan and I say a legal plan, I got to make sure I keep repeating myself on that, because sometimes what we have is that people say, well, I have a plan, it's all in my head, this is where my plan is. No, that's not legal, that's not going to work, that will not be enforceable. So when you say, this is what my intentions are and I trust my kids to do it that way, but that's not what the law says, it doesn't matter if you trust your kids or not. The law is going to say that it goes to the children of the surviving spouse, and so beneficiary designations will not work in this case. So let's think about this what happens after the death of the first spouse?

Bob Mannor: 6:45

Well, sometimes and one of the things I often recommend is we say, ok, up on the death, when you get remarried and second marriage, and it's his kids and her kids that one of the things that we should give some consideration to is to say, ok, well, maybe we should just keep our assets separate, and I actually think that's a good idea, especially if this is something that you're contemplating now that we say, ok, we're going to keep our assets separate. We still have to have an estate plan in place, but we're going to keep our assets separate. But very few people actually completely do that. They say, well, we're going to buy a house together. If we have a house together, we're going to have an account together, because we have to pay for the house. And then the next thing, you know, they say, well, we've been married for 20 years, I would want my spouse to get my retirement benefits. I would want my spouse to be able to have access to my IRA. So I wanted to go to my kids eventually. But I would want if you know, my spouse lives longer than me. I want to make sure they're taking care of too We've been married for 20 years those types of things. So I see this all the time and this is what happens almost always. I mean, occasionally we'll see families that had kept their assets separate, but it's very rare. But even if you have kept your assets separate, we have to have the estate plan address that and make it very clear that this was intentional. One of the things that sometimes folks will do is they will get this prenuptial agreement before their second marriage. Now, the thing about that is, the prenuptial agreement only works if you abide by it, and so I've had, I think I would say, the majority of people that came in with the prenuptial agreement. It was not worth the paper that it was written on. And why do I mean that? Well, maybe first of all, it's very hard to do a prenuptial agreement in Michigan. They're not favored in Michigan, and so you can do it, you absolutely can do it. But typically you have to have two lawyers and you have to disclose all the assets and there's a series of things that you have to do in order to get a prenuptial agreement. And I'm not opposed to that at all. I think that often in a second marriage situation, they're very good and you say, bob, well, boy, that's not very romantic, that's not very romantic at all to the extent that you're saying before we get married, we're planning for a divorce. No, no, no, no, no, no. That's not what prenuptial agreements are for. In my mind, of course, that should have some language in there about divorce. But just imagine that if you're getting married and you say, well, there's no way I'm ever going to get divorced, that's not why I'm doing a prenuptial agreement. The reason is to say to have a plan in place to say what happens when you die. Ok, because you're going to die, so I'm going to die, so you might not get divorced, but you are going to die. We know that's going to happen and we in the prenuptial agreement can address that.

Bob Mannor: 9:19

The problem with prenuptial agreements is that the longer people are married, the less they stick to them, and what I mean by that is they start commingling their assets. As soon as you start commingling your assets, your prenuptial agreement is out the window. It doesn't exist anymore. Prenuptial agreements are only four assets that are kept separate. If you combine your assets, forget it. Forget it. If you buy a house together, forget it. The prenuptial agreement is not going to be successful.

Bob Mannor: 9:46

Ok, and that's what I find most of the time when people come in with prenuptial agreements is you know, they've been married for a long time, they've been married for 20, 25 years, whatever. They were smart enough to get a prenuptial agreement when they got married, but then, as time went by, they're just like well, we're, you know, we're just a couple, now we're a family, and they stopped. They stopped keeping their assets separate. Well, as soon as you come into your assets, the prenuptial agreements really going to be ineffective. So what do we need to do? And the idea is and I'm going to give you the answer right now, but I have a whole other slide on this we really need to have trusts, a revocable living trust, and so the idea of a revocable living trust is you still have full control over it, but you've laid out the terms as what's going to happen during your lifetime, after your death, during your spouse's lifetime and after their death. Ok, and we have to be very specific about it. And, honestly, a lot of attorneys don't do this particularly well, because they're not even looking over the horizon as well as they should be, because they're saying, ok, well, we're just going to leave everything to the spouse and the spouse can decide everything.

Bob Mannor: 10:51

Well, what happens if the spouse gets dementia? After that? What if the spouse gets taken advantage of by their caregivers? What if the spouse you know one of the kids starts taking advantage and using undue influence on the spouse? We say, oh, we have good kids, they'd never do that to us. Money does some strange things. And you know what if the kids got a new spouse, their new spouse, a daughter-in-law, son-in-law, and they were being influenced or they got greedy? You know, money does some strange things to people. So you may say I have good kids, they would never do that, boy. I've seen some strange things happen after the death of the parent and people being greedy or maybe just feeling justified and causing all kinds of problems. And so this is particularly a problem in a situation with the blended family or a second marriage with his kids and her kids. So what happens after the death of the first spouse?

Bob Mannor: 11:44

Well, a lot of times you're the person that died will have expressed, you know, will have wanted to say okay, I would want to kick them out of the house, I want them to be able to stay in the house. They would say I want them to have access to my money, I want them to have access to my IRA. And then I say, okay, great, so that's usually that's the end of it. They're just saying, okay, well, it goes to. Everything goes to my spouse. We've been married 20 years, 30 years, 40 years, whatever. And they just say everything goes to my spouse. But then we have to ask the next question Okay, now imagine that a month after you die, let's say, you get a joint car accident together and you die first, and a month later your spouse dies.

Bob Mannor: 12:25

What would you want to have happened to those assets then? And almost everybody says, well, I either want it to go to my kids, I want it to be split equally between my kids and their kids. And I say, well, that's not what's going to happen. That's not what's going to happen if you're just using beneficiary designations. Because you put a beneficiary designation or you listed your spouse as the primary, as the as your, the person receives everything in your will. Everything is going to go to that spouse, even though they only live for another month, and then it's going to go to their heirs, especially if your spouse didn't have an estate plan, meaning that your kids get cut out completely and it doesn't matter if they live a month after you or 10 years after you.

Bob Mannor: 13:06

It is important that we have a plan for that, because people don't think through that In fact, honestly, a lot of lawyers don't think through this and this is where we really have to do good planning to say, okay, no, I want my spouse to be taken care of, I want them to have whatever they need for my IRA, for my retirement plan, for I want them to live in the house, I want them to have access to the house and maybe even be able to sell the house and get a smaller house. I want them to have access to all of that. I just want whatever's left over when they didn't use, I want that to go to my kids, or I want my kids at least to get half of that or whatever that scenario is. And so if you don't have a plan for that, that's not going to happen, and so a will generally is not going to allow that to happen. You're not going to make that happen in a will. You definitely can't have that happen with beneficiary designations.

Bob Mannor: 13:58

So we have to talk about what happens after the second spouse, because way too often it ends up everything goes to the children or the heirs of the second spouse. There's a famous story of a local attorney who her mom died and then he married someone else and then he died. What's the odd rest of the story is then his new spouse died, his new wife died, and what happened? Well, she didn't have any kids. So what happened to the family home and all of the assets? It went to the new spouse's mom who was her heir. It didn't even go to her kids because she didn't have any kids. So mom and dad's kids got cut out completely and it went to some stranger because that was the next of kin of the new spouse. So mom dies, dad remarries, dad dies and then new spouse dies. It went to some stranger who wasn't a child, it was just the parent of the new spouse, because that was her, her heir, that was her sole heir. So crazy things can happen if we don't have a proper plan in place.

Bob Mannor: 15:03

And of course, let's talk about this what if the spouse remarried after the death of the first spouse? So there's so many different examples of this. So let's say, even if you've been married a long time and you're older and you say, well, I don't think either of us would ever remarry, you know, it happens. So one of you dies and the other one, you know, at some point they remarry. Well, what's going to happen to those assets? Are those if your spouse the surviving spouse dies? Are any of those assets going to end up going to that new spouse and not to your kids? This is true even if it's not a blended family, even if it's not a second marriage, even if it's a first marriage.

Bob Mannor: 15:38

But it's something to think about and it's something to plan for it. There's ways that we can plan for that in your legal documents and your trust. Typically it has to be a trust. We can't plan for that in a will, and I keep saying that and I'm gonna get back to that in a second. But why do I say that? You're things you can plan for in a trust that you can't plan for in a will. It's cause.

Bob Mannor: 15:57

A will is a point in time. A will only takes effect when you die and everything is frozen at that point. When you die, the will says okay, this is when this will takes effect and everything is treated as if time stops on that and the court is joined to then enforce that will based on if time had stopped on the second of your death, and so if strange things happen after that, that can't account for it. The will can only take into account what's happened up to the second of your death, whereas the trust can be planning for generations. They can be planning for multiple generations, and so we can take into account what happens afterwards. We can take into account if the spouse remarries, or if there's money left over after the death of the second spouse, or if the spouse gets dementia, or if the spouse is subject to undue influence by one of the kids or a caregiver or somebody taking advantage of the surviving spouse.

Bob Mannor: 16:56

So these are all really really important issues, and so there's no surprise here as far as what the solution is, or one of the solutions is is you probably need a trust, and I say at least one trust. Now, a lot of times in a second marriage we've been able to come up with a good plan where it's still we're using one trust, but often a better plan is gonna be two trusts where each spouse has their own trust. So I keep saying this word trust, a revocable living trust. Let's take a step back and define what that is. A revocable living trust is just a contract, that's all. It is a contract that says here's what I wanna have happen when I'm alive and well, with my money and my assets. Here's what I wanna have happen when I die, with my money and my assets. Here's what I wanna have happen after that with my money and my assets. And I forgot one. There's one stage that I forgot, that we shouldn't forget, which is here's what I wanna have happen if I become incapacitated, with my money and my assets. So that's all. It is a contract.

Bob Mannor: 17:53

A trust is just a contract that says here's my master plan, here's what's gonna happen, and it can have all kinds of contingencies. Well, if this person dies, then we bring in this person. If this person's not there, then it's gonna be this person. I have contingencies for illness, have contingencies for dementia, have contingencies for what if they remarry? Have all kinds of contingencies. That's the idea of a contract.

Bob Mannor: 18:15

People make fun of lawyers all the time because they look at legal documents and they say well, why does it have to be so many pages? Well, you can imagine, with a trust, which is a contract that says here's what I wanna have happen for the unknown future, it's gotta be pretty detailed, right? It's gotta be pretty specific and we gotta think of every possible contingency out there and have a plan for that. So a trust is gonna be a lot more pages than a will, and the reason is one of the things that you think about with a trust is you're writing all your own rules. The lawyer's helping you do it, but you're writing all your own rules for every possible future that could happen, whereas with the will, the state's done most of that for you. The state of Michigan has done most of that for you, because the will is subject to all the court rules, all the probate rules and all the dispute resolution and everything else that's associated with that. So a will can be very, very simple and still be very effective, because it incorporates all the rules that the politicians have written for you or what the regulators have written for you or the judges have written for you, and so the idea is do you want that?

Bob Mannor: 19:26

The second thing is it has its limitations because, like I say it just kind of, there's a point in time where it has to take effect at the date of your death and we can't really plan for stuff after that. I mean, there is a things that's such as an after death trust, which the technical term for that is called a testamentary trust, and that's a trust that's created by the probate court after your death. Still, though, it doesn't have the same flexibility as a living trust, one that you write the rules on. You've made those determinations, so the reality is, a will is not going to be sufficient for these purposes. When it's a second marriage, we have to have a trust that's gonna say okay, no matter which one of us dies first.

Bob Mannor: 20:09

This is the plan, and really a strongly, strongly recommend that we come up with a joint plan with husband and wife that you both consent to and you both agree to. It is another thing that comes up from time to time where I'll have a husband and wife come out again and they'll say, well, when I die, I want it all to go here, and the other one says, well, when I die, I want it all to go here, and yet they have joined assets. Well, now we've got a problem because we can't have the same asset go into completely different directions. So we gotta come up with a solution, and I'll consult with you. One of the attorneys here will consult with you and help you come up with the plan. But the idea. We've gotta either say, okay, you decide 50%, and you decide 50%, or you just change the percentages, or we just come to a joint agreement and we negotiate on that. But we really highly recommend that we have a joint agreement where both spouses agree. Ultimately, what's gonna happen with everything? Okay, so we can help you with that if there's a disagreement between husband and wife or between the spouses.

Bob Mannor: 21:16

But again, a will's not really gonna be sufficient for that and a basic trust is not gonna be sufficient. So some people say, oh, okay, we're fine, bob, yes, it's a second marriage, yes, it's his kids and her kids. But we went to a lawyer, or even worse, the lawyer came to our house. And I say that because there's a bunch of groups out there that will sell you a really basic form run of the mill trust that is not pretty much worth the paper that it's written on. That will come to your house and what they're really gonna try to do is sell you an annuity or something like that. But they get in the door by saying they're gonna do a legal work for you. So, but you have a basic trust. You say, oh, we're all set, we have a trust.

Bob Mannor: 21:55

Well, I would bet what the trust says is, when you die, when one of you dies, everything goes to the other one. Okay, well, that's the end of it. There's nothing to talk about then, because everything goes through the other one. Now, we haven't planned for what happens next, and so what we typically would recommend in a situation like this is we say, okay, we're gonna say, and the death of the first boss, whichever one it is, everything will stay in the trust and you'll have access to it and you can spend it. But if you don't spend it, if you don't run out of money, whatever's left over is gonna go to the people that we've agreed on, either equally to all of the kids, or 60% to these kids and 40% to these kids.

Bob Mannor: 22:41

Whatever it is that we've agreed upon as to what's gonna happen after the death of the second spouse. So we actually keep the assets in the trust and manage it through the trust, rather than and have restrictions. Or we say, okay, the surviving spouse can't change the rules of who gets what. And then the other thing is ideally we have a provision in there that says the surviving spouse can't actually just take all the assets out of the trust and create a brand new trust. So that's where we might consider having a co-trustee upon the death of the first spouse. Okay, by doing that, we can put some provisions in there and rules with regard to the co-trustee that say what the surviving spouse is able to do, whether they're able to change the beneficiary on accounts or whether they're able to take the money out of the trust or those types of things Because the idea is we wanna have some protections that the surviving spouse doesn't get taken advantage of, doesn't get remarried and give everything to their new spouse. All these get dementia and lose all the money that way because of nursing home costs or things like that. So those are the ideas. In other words, we really have to think through each stage of life and what happens after you die.

Bob Mannor: 24:01

So then the final thing I wanna talk about is planning for care. So this is something that we do in our office. A lot of lawyers don't get involved in this type of thing, but it is really important, and that is that many, many, many, many of us will have some period of time before we die where we're not able to manage our own affairs anymore, where we're just because of old age or just because of frailty, or because of memory loss or dementia or Alzheimer's or those types of things that we need to be dependent on somebody else. Well, particularly of import, there is the cost of the care that you might need. So let's say, sometimes people say, oh well, my daughter will take care of me, okay, well, great, hopefully that happens. Or they say, oh, I wanna just stay in my house forever. Well, okay, but that's very, very expensive.

Bob Mannor: 24:52

If we need 24-hour care, we need to pay somebody else to be there 24 hours a day. And some people say, oh well, that will never happen to me. They say, oh, I'm gonna live in my house, I'm gonna die in my house. But reality is what? If you need 24-hour care, you know that you can put blinders on and say that'll never happen to me. But I'm gonna tell you it happens to a very large percentage of people. And so, if we don't have a plan for that, to say, okay, not only, yes, I'd like to stay in my home, and here's how we're gonna pay for it, because we need to probably have a plan for it.

Bob Mannor: 25:24

Most people don't think that that's actually a legal issue, but it is, and the reason it's a legal issue is because there's different government benefits out there Then can help you pay for those things help you pay for a nursing home, pay to help you pay for home care whether it's veterans benefits or Medicare or Medicaid and Sometimes we have to have our estate plan set up Appropriately so that we can access those benefits or at least that we have the ability to Alter our estate plans to protect those assets in a crisis. And so this is particularly important, of course, in the situation of a second marriage, because one person might have entered the marriage with all the money and the other one really had nothing. And it seems very unfair in some cases to say, well, we could have accessed these benefits, but we didn't have our estate plan set up properly. So this is another thing that we really want to think about from the standpoint of a second marriage is saying, okay, this is great, we've got a plan for what's gonna happen when I die, when you die.

Bob Mannor: 26:25

We also probably should have a plan in there that says, well, what happens if one of us gets severe Alzheimer's? What happens if one of us gets dementia? How, what options do we have there? Have we thought through that? Have we talked to a lawyer Law Group Mannor, so that we can figure out Whether we're not, you qualify for any of these programs, and and not only whether we can, but w hat's the process, how we're gonna do that, what specific wording or what specific details do we need to have built into our estate plan to make sure that we're not gonna lose everything to nursing home costs? So that is my presentation for today. If you have questions, you can always, of course, call us. Our toll-free number is 800-990-6030. Thank you for your time.