Prevent Disinheritance of Heirs After Remarriage

[Route246]

I am very focused on this topic where a widow or widower remarries and the children end up getting disinherited and step-children end up heirs to what is rightfully/morally the assets that should be going to the disinherited heirs.

I had a long tax meeting with my CPA (also a close friend) yesterday and he recommended exploring an AB Trust. Do a search and you will find articles like this.

In this article, this jumped out to me and sums up perfectly my concern:

Spendthrift protection: By planning to place assets in an AB trust when the first spouse dies, a couple can predetermine how the surviving spouse will benefit, in addition to controlling the assets for children and grandchildren. When a surviving spouse remarries and estate documents are redrafted to provide financial assistance to the new spouse, assets may be comingled. If done without careful consideration to the existing and new family structure, children from the previous marriage could be accidentally disinherited or may not benefit in the manner in which the deceased first spouse would have wanted. In that regard, an AB trust can provide for spendthrift protection.

This can happen very innocently. If I remarried and dementia starts setting in I may inadvertently freeze out my intended heirs. I fear for myself first, even before concerns I would have for my surviving wife if I were to die first.

I've seen dementia in real life and I am quite aware of my own inadequacies if it were to happen to me. I want to have something in place that will protect at least 50% of our assets and an AB trust seems to be something worthy of consideration

 

[socca]

... I had a long tax meeting with my CPA (also a close friend) yesterday and he recommended exploring an AB Trust. ...

Talk to a lawyer specializing in estate planning about a QTIP trust. A full discussion of the difference between an AB and QTIP trust is above my pay grade.

 

[Route246]

Talk to a lawyer specializing in estate planning about a QTIP trust. A full discussion of the difference between an AB and QTIP trust is above my pay grade.

Thank you. This is very helpful. I especially like this description:

QTIPs protect all assets and income: As your spouse ages, they may be unable to make the sound financial decisions they once could. Dictating how income or principal is distributed and used protects the assets for all beneficiaries you name. Your assets cannot be accessed by thieves, or scammers, be accidentally signed away or be used in ways you didn't intend for them to be used.

That spouse that ages could be me when I'm NOT of sound mind and body.

 

[Sunset]

Never heard of a QTIP trust,

When reading the link I see:
"A QTIP is required to pay all of its income to the spouse beneficiary. There can also be no other beneficiaries until that spouse passes away."

To my reading this is fine if there is a HUGE pile of $$ in the QTIP and the surviving spouse doesn't need much.
But if there was less than $1M in the QTIP and surviving spouse only had SS survivor and went into memory care, the QTIP would not be able to pay for it. Assuming memory care was $150K per year.

Do other folks know otherwise ?

 

[Sunset]

My solution so far is give a chunk at death to the kids, and rest to the DW and hope she will pass on a good portion later.

I do see the problem with my solution so far..

 

[TheWizard]

An easy solution to this problem is simply not to remarry in your later years.
I divorced, unfortunately, at age 48 with two offspring and have been following my own advice for the past quarter century...

 

[Sunset]

An easy solution to this problem is simply not to remarry in your later years.
I divorced, unfortunately, at age 48 with two offspring and have been following my own advice for the past quarter century...

I had the same thought for 5 years...

Then I met Miss Wonderful.

 

[Route246]

We don't want the kids to be demotivated, waiting for someone to die. That is a very suboptimal outcome and for some kids it really ruins their chances of success in life, albeit self-inflicted.

My solution so far is give a chunk at death to the kids, and rest to the DW and hope she will pass on a good portion later.

I do see the problem with my solution so far..

Not remarrying is a good intention but for me, I'm thinking of dementia and brain decay when my judgement may get the better of me. It is fine and dandy to say it now while my brain is functioning rationally but I watched both parents have slow onset dementia and it changes judgement and rational thinking. I need a guardrail against my worse self.

An easy solution to this problem is simply not to remarry in your later years.
I divorced, unfortunately, at age 48 with two offspring and have been following my own advice for the past quarter century...

Congratulations. It happens.

I had the same thought for 5 years...

Then I met Miss Wonderful.

 

[socca]

But if there was less than $1M in the QTIP and surviving spouse only had SS survivor and went into memory care, the QTIP would not be able to pay for it. Assuming memory care was $150K per year.

Do other folks know otherwise ?

The QTIP trust agreement I'm familiar with was drafted in the '90s. I don't know what's customary / legal now. For that QTIP the surviving spouse can invade principal up to $X per year (actually, it's the trustee(s) who decide). The surviving spouse (or trustee(s), if different) can also alter how trust assets are distributed among successor beneficiaries upon her death (e.g., the surviving spouse can disinherit one of the successor beneficiaries - ouch!)

Considering the expense of setting up and administering a QTIP I suspect that most start out with assets >> $1M.

 

[marko]

I'd think that a few iron-clad trusts could be set up to avoid such complications. We have trusts that guarantee outcomes regardless of who survives, remarries, divorces or becomes incapacitated.

 

[CaptTom]

...Not remarrying is a good intention but for me, I'm thinking of dementia and brain decay when my judgement may get the better of me... I need a guardrail against my worse self.

Brain decay? Maybe that's what it was. I needed that guardrail before my first marriage at 19 years old...

Sorry. Couldn't resist. Carry on.

 

[Gumby]

This is not a situation limited to elderly widows/widowers with dementia.

Imagine the following scenario: A couple has several children. They divorce when they are late 30s (their children are late teens) and soon thereafter remarry younger spouses who have their own younger children from prior marriages. 40 years later, the original parents each die, leaving everything to their surviving second spouses. When each of those second spouses subsequently dies, does anyone really think the children of the original couple stand to inherit anything?

This is exactly what happened to my siblings and me. Of course, neither of my parents had anything of value, so it is of only academic interest. But my guess is that is often how things work out.

 

[Sunset]

We don't want the kids to be demotivated, waiting for someone to die. That is a very suboptimal outcome and for some kids it really ruins their chances of success in life, albeit self-inflicted.
..

I also don't want kids to be demotivated, saw with my cousin who slacked off all his life while his parents supported him (A LOT).

I have not told my kids they get anything upon my death, and they better not be waiting as it's not life changing.

 

[DrRoy]

Irrevocable trust.

 

[pb4uski]

Brain decay? Maybe that's what it was. I needed that guardrail before my first marriage at 19 years old...

Sorry. Couldn't resist. Carry on.

In that case it would more likely be underdeveloped rather than decayed. Think of how much smarter you got since you were 19!

 

[pb4uski]

My parents revocable living trusts operated the way the the OP describes. Dad was grantor, beneficiary and trustee of his trust. As long as he was alive it was a non-event and was revocable. When he died the trust became irrevocable, Mom became the beneficiary and Mom, sis and I became co-trustees with any actions by the trust requiring the approval of two of the three of us. So from when Dad died the trust was operated for Mom's benefit and funded her care. When Mom died, under the provisions of the trust the assets were distributed to us 5 kids.

I'd have to go back to the trust to see if after Dad's death if the distributions were limited to income only. I don't think the were in case Mom ended up in a nursing home and trust principal was needed for her care.

They each had mirror image trusts when the trusts were set up in 1991 and each trust owned 1/2 of their marital assets, including 50% interests in 3 different properties.

 

[MarieIG]

IMHO, trusts can be drafted to protect the surviving spouse and the children.

(Personally, I would have no problem with assets being spent down to support DH's care - but I would prefer that they not go to the home health care aide who married him in his last month of life. Ditto for me.)

 

[Chuckanut]

This is an interesting discussion. My own and only Business Law course in college was taught by a practicing lawyer dealing with just such a scenario. His client, a young woman of 21, was the daughter of two people who built a great business and became upper middle class affluent people. The father died leaving everything to his client’s mother . She remarried to a man with kids of his own. Then the mother died, leaving everything to her new husband. When the girl turned 21 (the age of full majority at that time), he tossed her out of the house.

 

[rodi]

This is why it's not a bad idea to update trusts/wills if you remarry. When my dad moved in with my step mom they did this. Technically they were registered domestic partners rather than married due to survivor pension and SS issues. They each redid their trusts to leave the bulk of their individual assets to their own children, but also take care of the survivor. For example, my step mom owned the house, outright, in her na name. Her trust stated that my dad could live in the home for up to 48 months after her death. The idea being he wouldn't have to move while grieving. His trust gave her a sizeable lump sum so that she would have adequate cashflow to maintain the house for many years. He predeceased her and that lump sum was taken off the top of the estate. My sister and I inherited the balance. When my step mom died, her 5 children inherited her assets. I'm still close to most of her kids, Even though we didn't meet till we were all in our 40's or older.

 

[RetMD21]

I've seen dementia in real life and I am quite aware of my own inadequacies if it were to happen to me. I want to have something in place that will protect at least 50% of our assets and an AB trust seems to be something worthy of consideration

I thought AB trusts were unnecessary after portability. It seems like it might be worthwhile seeing an attorney ab out estate planning if you are getting remarried.

 

[karel]

My situation: Divorced 15 years ago with several kids. Remarried 5 years ago, she has 1 child. Roughly 70% of net worth is my pre-marriage property which I would want to go to my kids, 30% is post-marriage property. So we are setting up 3 trusts -- one "joint" trust to hold marital / joint property, and then a separate trust for each of us. In the joint trust, after first one of couple passes, 2nd one will have those assets to live on both principal and income. Any remaining assets in the joint trust after both spouses pass gets split 50/50, with 50% going into each of the individual trusts. My kids are ultimate beneficiaries of my individual trust, her child is beneficiary of her individual trust. Also, the current 70% of net worth that is "pre-marriage) is in my individual trust, so my kids will be the beneficiaries ultimately. It's a bit complicated but this is the cleanest way I could come up with to handle these concerns. Ultimately my kids should get the assets that I accumulated before the second marriage, and the joint property will initially go to the surviving spouse, with anything left over split between the two sets of kids (through the joint trust distributing any remains 50/50 to the individual trusts). Can also use the individual trusts to hold any other separate property received -- for example, if spouse inherits assets from her parents, I would put that in her seperate trust, ultimately for the benefit of her child.

 

[KarenF]

Mt FIL (in his 90s) has a partner. They have not gotten married and don't have common law where they live. It seems much easier not to remarry, and have separate finances and estate plans.

 

[badatmath]

My step fathers next wife after my mother passed took full advantage of his failing mental skills to disinherit his first born son and me so that she could have more money to eventually leave to her own children (who had money from her first husband). It will be interesting if his remaining son gets anything when she passes (this is how it is laid out) because the letter I got from the lawyer was very clear his only "care and concern" was "for my wife" and not my offspring. Nothing like he was in real life as he was very much into volunteer work, active in church, got along with everyone.

But I know the remaining child feels very weird being "chosen" as well. I told him we understood the situation.

 

[RetMD21]

My step fathers next wife after my mother passed took full advantage of his failing mental skills to disinherit his first born son and me so that she could have more money ....

That's too bad. Remarriage is an important time to reconsider an estate plan.

 

[yclipse]

Before estate tax exemption equivalents were raised so high, and before portability, AB trusts were usually motivated by the need to minimize estate taxes. Now, that is not needed for most decedents, but the AB structure is still useful in this scenario.