06 Sep Who should get inheritance from second marriage?

Q. I’m getting married and my fiance wants to make sure his children from his first marriage get good inheritances when he dies rather than everything going to me. I don’t know how I feel about this or what would be fair. Can you give any guidance?
— Bride to be

A. Congratulations on your pending nuptials.

Estate planning for spouses with children from a prior relationship can be tricky. We’re going to refer to you and your fiancé as spouses even though you’re not married yet, just to make it simpler.

We can’t tell you how you should feel or what’s fair. That’s very personal and will depend on your relationship with your spouse, his children, and other factors.

We’re going to assume your spouse wants you to have ample financial resources after his death, and also that he wants to make sure his children receive an inheritance.

If your spouse leaves all of his assets to you outright, there is no guarantee that his children will ever receive anything, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater..

“Even if you execute a will that gives his children an inheritance when you die, you could change the will at any time after your husband’s death,” Novick said. “The new will could cut his children out and leave everything to someone else, such as your children – whether children with the deceased spouse or from a prior or later relationship – or a new spouse.”

From this perspective, you husband has a dilemma, Novick said.

So before discussing common solutions, let’s address whether he can unilaterally cut you out of his will.

As with most legal issues, the answer depends, Novick said, but New Jersey does have some laws to protect spouses from this situation.

“You may be able to claim an `elective share,’ which essentially entitles a surviving spouse to one-third of the deceased spouse’s estate even if the deceased’s will states that the survivor gets nothing,” Novick said. “However, the law is needs-based, meaning that if you have your own property, either acquired independently or inherited from your spouse – including life insurance benefits – that is more than the elective share amount, then you are not entitled to anything beyond what is provided under the will, which could be nothing.”

There is also the law concerning an “omitted spouse.”

If your spouse executed a will before the marriage that leaves everything to his children but has no provisions for a future spouse, then you are still entitled to a share of the deceased spouse’s estate under the New Jersey intestacy laws, Novick said.

Intestacy laws generally only apply when someone dies without a will, but they would also apply in this situation, he said. In that case, you would be entitled to somewhat more than 50 percent of your husband’s estate and his children would inherit the rest, Novick said.

Your husband has several ways to address the situation.

The simplest solution is that he can leave a portion of his estate to you and a portion to his children, Novick said. Depending on his net worth, neither you nor the children may feel the inheritance is sufficient. This can be addressed by taking out additional life insurance so that you and the children receive a minimum amount upon his death, he said.

Another common solution is for your husband to include a trust for your benefit in his will.

“Typical provisions for this type of `spousal trust’ would provide you with all of the income from the trust as well as principal distributions necessary for your health, education, maintenance, and support, known as the ascertainable standard,” Novick said.

This essentially means that you are entitled to principal distributions to keep your standard of living at the same level it was before your husband’s death. Anything left in the trust when you die would go to the step-children, Novick said.

“The trust would usually include the couple’s home so that the surviving spouse can stay there so long as he/she is alive,” he said. “The home can also be addressed by granting the survivor spouse a life estate deed.”

Coordinating beneficiary designations of retirement accounts and life insurance to achieve the desired outcome is also important, Novick said.

Another common way to provide for step-children, especially when one or both spouses is wealthy, is a prenuptial agreement. This is a written agreement between potential spouses made in consideration of marriage and effective upon the marriage.

Postnuptial agreements are similar, but are drafted after the marriage, Novick said.

“Both are generally valid in New Jersey and typically include provisions for division of property in the event of a divorce and the making of a will, trust, or other arrangement to carry out the provisions of the agreement upon a spouse’s death,” Novick said. “Importantly, a prenup or postnup that addresses the division of property will generally supersede a spouse’s rights under the elective share or omitted spouse laws.”

How to determine what combination of solutions is best requires some forethought.

The net worth of each spouse prior to the marriage and earnings potential of each spouse during the marriage should be considered in determining a fair split, Novick said. If the children are adults, their financial situation may be pertinent, too.

“The ages of the spouses, especially if one is significantly older than the other, as well as the ages of the children, may also be important,” he said. “Additionally, the timing of the inheritance to the children may be a factor as the children may not receive anything for many years after their father’s death, such as with a spousal trust.”

You should consult with an estate planning attorney to discuss these options – and it’s best to start the process before you get married.

“I encourage you and your spouse to look at the situation from both sides so that you fully understand the others’ feelings and goals,” Novick said.

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