Understanding the Impact of a Second Marriage on Estate Planning

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If you are newly remarried or planning a second marriage, you’ll probably want to carefully consider how you structure your estate plan. Estate planning for second marriages requires careful consideration to ensure all parties are taken into consideration. This is particularly the case if you or your new spouse have children from previous marriages. Here are key considerations and successful strategies to use when estate planning for a second marriage.

What About a Prenuptial or Postnuptial Agreement?

Of course, marriage is about love. But you’ve both been married before and probably understand that finances and other conflicts can sometimes become overwhelming. It’s not uncommon for people to consider these types of agreements in second marriages as one way to protect their own assets and the legacy of children brought into the marriage. 

Estate Planning for Second Marriages

Second marriages can present some unique challenges when it comes to estate planning. Here are some strategies you may wish to consider to protect your rights and ensure your wishes are respected. 

Review and Update Beneficiary Designations

Assets that already have a named beneficiary may require updates when you remarry. For example, if either of you named an ex-spouse as the beneficiary on bank or retirement accounts, you may wish to change this. 

Create a Joint Will

When you remarry, it’s essential that you update your respective estate plans. This should start with a new will that specifies how you wish your assets to be distributed when you pass away. Without a will, your state’s inheritance laws would apply, which won’t necessarily adhere to your wishes. A will can also outline who you wish to be named as a guardian for minor children. However, this can become complicated when the child’s other parent still has partial custody. 

Choose the Right Type of Trust

A trust is an invaluable estate planning tool for transferring wealth, saving on taxes, and ensuring your wishes are followed after your death. Fortunately, there are many different types of trusts you can use to achieve your goals. 

In a second marriage, you may feel torn between the needs of your new spouse and those of the children from your earlier marriage. For example, a qualified terminable interest property trust (QTIP trust) allows an individual to name their second spouse as a life beneficiary of property in the trust and children from a prior marriage as the final beneficiaries. 

Prepare a Power of Attorney and Advance Directives

Finally, your updated estate plan should include a power of attorney (POA) and advance directives. Your power of attorney names someone you trust who will have the legal authority to enter into legal, medical, or business transactions or contracts on your behalf should you become unable to do so. 

Advance directives give someone you trust the legal authority over your medical decisions should you become incapacitated. Examples of these are a Health Care Surrogate, Living Will, and Advance Directive for Mental Health Care Treatment. 

Steps You Can Take to Protect You and Your New Spouse

A second marriage is a joyous event for everyone. But your life is probably a little more complex than it was the first time around. Here are a few steps you can take to get ready to plan your estate: 

1. Take an Inventory

Sit down together (or separately) and take an inventory of all your assets and debts. This includes real estate, vehicles, retirement plans, investment accounts, insurance policies, valuables, credit card debt, and anything else you own. Both people should have an idea of the total financial picture so one spouse doesn’t end up liable for the other’s debts. 

2. Discuss Asset Division

Decide how you plan to handle your finances once you are married or going forward. Will you combine your assets and only make joint purchases, or keep some of your assets separate? These aren’t always easy issues to deal with, but dealing with them upfront can avoid conflicts in the future. 

3. Make Some Decisions

Next, decide what you want to happen if you become incapacitated or when you pass away. If you have minor children or children from a previous marriage, these are particularly important decisions to make well in advance of any potential issues. 

4. Consult With a Lawyer

Even if you don’t have many assets or are bringing children into the marriage, meet with an estate planning lawyer. A knowledgeable attorney can update any existing estate planning documents. They will ensure your new plan protects your rights and fully expresses your wishes.

Our Louisville Estate Planning Attorneys are dedicated to providing helpful resources to people who are interested in safeguarding their assets and securing their financial future. If you want to learn more about making these sound legal decisions, we can connect you with a Kentucky estate planning attorney who will offer skilled guidance on wills, trusts, and other estate planning strategies. 

Gifting to Minors: The Importance of Careful Planning to Avoid Pitfalls

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Gifting your assets to minors can be an attractive estate planning asset for several reasons. This strategy allows you to give the minors in your life a financial head start on life and valuable savings while also potentially reducing your tax burden. Gifting money or assets to minors can also reduce your estate size, potentially lowering any estate tax obligations upon your death. 

Providing gifts to minors is also an opportunity to teach them about responsible financial management at a young age. However, careful consideration is essential with this strategy to ensure your well-intentioned gesture doesn’t lead to tax issues or other legal complexities for you or the minors you are trying to help. 

Understanding the Uniform Transfer to Minors Act (UTMA)

Kentucky has adopted the Uniform Transfer to Minors Act (UTMA). This act outlines assets gifted to minors must be managed, which can include anything of value like cash, real estate, vehicles, art, or something else. According to the UTMA, a custodian must be appointed to manage the assets until the minor reaches the age of termination, which is 18 in Kentucky. 

There are few restrictions on who can serve as a custodian. However, when choosing a custodian, it’s critical to select someone who is trustworthy. The custodian’s sole responsibility is to manage and protect the property for the minor’s benefit.

While this act protects the assets until the minor reaches the age of 18, there are pitfalls in relying on it. In Kentucky, the minor gains full control over the assets as soon as they turn 18, regardless of how you originally intended the gift. 

Gifting to Minors – Potential Tax Implications

Let’s assume you still wish to give direct gifts to minors. Will they be subject to taxes? That depends. Kentucky does not have a gift tax, but the federal government does. According to the IRS, individuals are permitted to gift up to a certain amount annually before they must pay a gift tax. In 2024, you could give $18,000 to as many people as you want, including minors, without paying a gift tax.

There is also a “kiddie tax” to consider, which is a tax on unearned income produced by gifts given to minors. If your gift to a minor generates more than a certain amount in annual income, such as $2,500 in dividends or interest, the minor would have to pay taxes on that income at their parent’s marginal tax rate. 

Consider Potential Pitfalls When Gifting to Minors

When you gift anything of value to minors, it’s critical that you consider the potential pitfalls:

  • Loss of control — With custodial accounts under the UTMA, the minor gains full control of the assets at age 18 and could quickly misuse or deplete the assets. 
  • Impact on financial aid — Some large gifts to minors can impact their eligibility for need-based financial aid for education. 
  • Tax implications — If you don’t understand the tax implications of gifting, it can result in a larger tax burden than planned. 

Given these complexities and the fact that a gift might not achieve your intended goals, most people find that using a trust is the best option. An experienced estate planning attorney can help you weigh your options and execute the most appropriate strategy for your circumstances.

Other Options for Gifting to Minors

A few other ways you can gift to minors and avoid some of those common pitfalls include:

  • 529 Plans for Educational Expenses — If you specifically want to support a minor’s future educational expenses, you may consider a 529 plan. Contributions to these plans accumulate tax-free, and withdrawals are tax-exempt when used for expenses like fees and tuition, supplies and books, and certain room and board costs. 
  • Trusts for Minors — If you want to retain control over how a gift is used or make a larger gift to a minor, a trust is a more reliable option. These estate planning tools allow you to specify when a person will gain access to the assets and how the assets can be used. There are several different types of trusts you can use, but a revocable trust is the most common. 

While there are legal and tax implications to gifting, this estate planning strategy can be beneficial when approached properly. Our Louisville Estate Planning Attorneys are dedicated to providing people with the information they need to make sound decisions about their financial futures. We can connect you with a knowledgeable Kentucky estate planning attorney who will offer skilled guidance on trusts, wills, and other estate planning strategies. 

Common Misconceptions About Wills and Probate

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Estate planning can be intimidating and confusing. In fact, just the idea of writing a will or considering what will happen when you’re no longer around can be downright paralyzing. There is a lot of misinformation surrounding wills and probate that can intensify these negative feelings. Here are some common misconceptions and the truths about wills and probate that can help clear up some of that confusion.

Misconception #1 — Wills Must Always Go Through Probate.

While most wills have to go through probate, there are some exceptions. For example, an estate worth $30,000 or less in Kentucky can usually avoid the probate process. Also, any assets held in a trust, no matter the size, can avoid probate. This is why it makes sense to use this valuable estate planning tool.

Misconception #2 — Your Assets Will Be Fair Game If You Don’t Have a Will.

This isn’t true. If you don’t have a will, your assets won’t be fair game to whoever comes along first to claim them. The state of Kentucky will step in to settle the issue during the probate process.

An estate without a will is considered “intestate” and is subject to the rules of succession. Specifically, your spouse will usually inherit half of your property, with the other half going to your descendants, parents, or siblings. If you want something else to happen or wish for your loved ones to avoid this hassle, you need proper planning.

Misconception #3 — Beneficiaries Cannot Also Serve as Executors of a Will.

It’s actually quite common for a loved one to be a beneficiary as well as the executor of an estate. For example, you can name your spouse as the executor of your estate if you pass away before them. That person would also probably be a beneficiary.

Misconception #4 — Probating an Estate Takes Years.

Most estates won’t take years to resolve. Often, the only delay is the waiting period mandated by state law. For example, Kentucky law requires that all probates remain open for at least six months to allow creditors or others to file claims. After this period, this estate can be settled.

Misconception #5 — Spouses Can Exclude Each Other in the Will.

Some spouses decide not to leave each other the bulk of the estate, especially when they have married late in life or are on second marriages with children from previous relationships. However, this can conflict with state law, depending on the length of the marriage. An estate planning attorney can help you create the proper arrangement with signed waivers, if necessary.

Misconception #6 — You Don’t Need a Will If You Don’t Have a Lot of Assets.

There are many reasons to create a will, and most of them have nothing to do with money. After you pass away, settling your estate involves more than just dividing up assets. A will also informs your survivors who will take care of your children and pets, among other important matters.

Louisville Estate Planning Attorney is dedicated to providing people who are interested in securing their financial future with the information they need to make sound decisions. We can connect you with a Kentucky estate planning attorney that will offer knowledgeable guidance on wills, trusts, and other estate planning strategies.

Addressing Misconceptions about Wills and Probate – Getting the Answers you Need

Misconceptions about formulating or having a will and the probate process can lead to uneccesary confusion and frustration for many people. Contact an experienced Kentucky estate planning attorney today for help with all your estate planning needs. They will walk you through the process and answer any questions you may have about wills and probate.