By Jennifer Flanagan and Kathryn Calo
REGION – Finding love later in life comes with many advantages, including blending families with adult children or grandchildren and the financial freedom to enjoy each other without many of the stressors that exist earlier in life. Couples over fifty have likely spent more than two or three decades working hard to save for retirement and grow their individual wealth. They therefore need to be mindful about how those assets are treated in the event their spouse predeceases them or in the unfortunate case of a divorce.
Photo/Pexels.com
Plan early
Death and divorce are the last things we want to consider when starting a life together, but the opportune time to plan for either of these events is before getting married. From a divorce perspective, couples seeking to protect their assets should execute a prenuptial agreement. A prenuptial agreement allows you to determine, well before you’re even married, how your assets are treated in the event of a divorce or upon the death of either party.
A prenuptial agreement is a contract that provides you with the freedom to create a plan that works best for each of you and your family. Any assets you intend to keep separate should remain in your individual name and should not be comingled in order to best preserve them as your separate property. It is often advisable to open a joint account after you are married into which you each contribute and from which joint or other agreed upon expenses are paid.
Planning for the death of a spouse will depend on many factors, including your net worth, your age and whether you have children from a prior relationship. At the very least, if you are planning to marry, you should update your wills, health care proxies and durable powers of attorney after the marriage takes place.
Depending on where you live, marriage could revoke a prior will or have other unintended consequences. In Massachusetts, for example, marriage does not automatically revoke a will that one spouse executed prior to the marriage, especially if children are involved. For example, let’s say that Alice has two children prior to her marriage to Bob. Alice has created a will leaving her entire estate to her two children. If Alice dies before Bob, Bob has no claim against Alice’s estate as to any property that Alice left to her children. If Alice left 75% of her estate to her children and 25% to her favorite niece, however, Bob would have a right to a portion of that 25%, as if Alice had died without a will (the “intestacy share”). Under Massachusetts law, Bob’s share in that case would be the first $100,000 of the 25%, plus ½ of the balance of the 25% share.
Will before marriage
If Alice intends to leave Bob a share of her estate, she should consider executing a will before their marriage. The will should specifically state that the will is signed “in contemplation of marriage.” If Alice does not execute such a will before their marriage, she and Bob should do new wills as soon after the nuptials as possible.
On the flip side, Massachusetts law deems an ex-spouse named in a will or a revocable trust to have predeceased the maker of the will or revocable trust. The will is not invalidated. Rather, the terms of the will or revocable trust will be read as though the ex-spouse is not living. For example, let’s assume Bill and Jane have two children of their marriage, and Jane’s will leaves her estate “to Bill, if he survives me, or to my children in equal shares if Bill does not survive me.” If Jane and Bill divorce and Jane subsequently dies, her will is read as if Bill is not living (even if he is). Hence, Jane’s entire estate would pass to her two children equally. The same reasoning works for revocable trusts.
Similarly, if Jane names Bill to be her personal representative (the Massachusetts term for executor) or trustee, with her son Sam as the successor, Bill will be disregarded and Sam will step in as personal representative and trustee.
If Jane names Bill as the primary beneficiary of a life insurance policy or a retirement plan and her two children as equal contingent beneficiaries, Massachusetts law says that, so long as she can “revoke” the designation or change it, Bill will be deemed to have predeceased Jane and her two children will step into the primary beneficiary position. To be safe, however, and especially with beneficiary designation property such as life insurance and retirement plans, you should change the beneficiary as soon as the divorce is final, so as to avoid any issues with the life insurance company or financial institution.
Different estate goals
Many couples getting married later in life or getting remarried have different goals for passing on their estates. Most want to take care of their spouse, but want to make sure that children from a prior relationship, other family members, or charities that are important to them will ultimately benefit from their estate. Many couples come in and say, “I trust my (second) spouse to take care of my kids when I am gone.”
Once the estate passes to the second spouse, however, it is up to that second spouse to decide how the assets pass on their own death. Perhaps the second spouse intends to leave what he or she inherited from the first spouse to the first spouse’s children – but someone in their life exerts undue influence or pressure on the second spouse and they instead leave the first spouse’s assets to the second spouse’s own children or relatives, a subsequent spouse, or even a charity.
Revocable Trusts are a great way to ensure that your children or others receive a portion of your estate either upon your death or upon the death of your spouse. The Trust allows you to predetermine how the balance of your estate should be distributed even if you are the first to die. You can divide the Trust into different shares for your spouse and children (or others). The Trust share for your spouse can be used for their benefit during their lifetime, and anything that remains on their death can pass to children, other family, or charities. The Trust could also hold your real estate, ensuring that the surviving spouse can live there during his or her lifetime, but the value passes equally to the spouses’ intended beneficiaries.
Couples in a second marriage should be very careful about owning property jointly. Regardless of what a will says, if a couple owns property jointly, under Massachusetts law, that property will pass to the surviving spouse on the first spouse’s death. The same is true for bank and investment accounts. For example, let’s say a spouse has always owned a bank account jointly with his daughter. When that spouse dies, he cannot leave the bank account to his spouse, even if his will leaves it to the spouse. Under the law, the account passes automatically to the daughter.
If you are insurable, life insurance is also a great tool to set aside something for your children without impacting your spouse’s inheritance or net worth after your death. The insurance could be paid directly to the children or held in a trust for their benefit, depending on their ages. Life insurance payable to the children (or to a trust for their benefit) can be a very useful tool, especially when there is a significant age difference between the spouses. The children can inherit from the parent on the parent’s death, rather than having to “wait” for the spouse’s death. This type of planning can be very beneficial to family harmony.
Celebrate the beginning of your life together and the joyous occasion of your marriage, but make a point to at least consult with an attorney about what your impending marriage may mean for the two of you and your individual families.
Jennifer Flanagan and Kathryn Calo are attorneys at the law firm Mirick O’Connell.
RELATED CONTENT:
Managing digital assets is essential for comprehensive estate planning
What happens to your debt when you die?
Estate planning for pets ensures your wishes are honored
