It is not uncommon for an individual to remarry after a divorce or the death of a spouse. Remarrying is in many ways an affirmation of faith in the future and of hope for happier times. While you may not feel comfortable thinking about your own mortality if you have recently remarried, it makes sense to look into ways that you can ensure that your new spouse and your children will be taken care of financially should anything happen to you.
Remarriage will require you to revisit and reevaluate your estate planning strategies. Here are some important considerations.
Who Will Benefit from Your Assets
You know that a will outlines the way you want your assets distributed on your death. If you lack a will, then your estate will be distributed according to the intestacy laws of the state you reside in. The state, not you, has control over who receives what. It goes without saying that having a will is important.
However, the distribution of assets that are held in retirement accounts and the proceeds of life insurance policies is not governed by a will. The assets in these accounts pass automatically to the people you named as account beneficiaries. If you want your new spouse to receive the assets in your retirement plan, you have to make the effort to name your spouse as the primary beneficiary on the plan beneficiary document. Likewise with the proceeds of your life insurance policy. Additionally, certain financial accounts may pass according to what are known as transfer-on-death (TOD) or pay-on-death (POD) designations.
You should also understand that when you own assets jointly with another person with rights of survivorship, that person automatically owns that property when you die. It is immaterial what your will says about that asset.
A Trust Provides Control
Trusts are flexible tools that you may find helpful when you are making provisions for your loved ones’ current and future financial security. A trust established during your lifetime is called a living trust. One that is created in a will is called a testamentary trust. Living trusts be revocable or irrevocable. A revocable living trust generally names you (or you and your spouse) as trustee and beneficiary.
Here’s how a trust works:
- You transfer money or other property to the trust.
- You name a trustee (or co-trustees) to manage the trust.
- You name one or more beneficiaries who will receive the trust income and principal.
- You provide detailed instructions outlining how the trust property is to be managed and distributed.
When you establish a trust, you can help ensure that your new spouse will be financially protected when you die, while also protecting your children. For example, a qualified terminable interest property trust (QTIP trust) can provide a lifetime income for your spouse and protect the trust assets from possible mismanagement during your spouse’s lifetime.
The trustee can continue to manage the trust’s assets after your spouse’s death and distribute the assets as you have specified in the trust document.
Your financial professional can explain in greater detail the many ways you can use a will and a trust to ensure that your spouse and your children will be protected financially in the event of your death.