New Marriage or Partnership? Time for an Updated Estate Plan!

Gerry Turner, the first “Golden Bachelor” and a widower, and his wife, Theresa Nist, a widow, started divorce proceedings just three months after their televised wedding. Their marriage and subsequent divorce emphasize the importance of estate planning in remarriages or domestic partnerships where one or both partners were previously in a committed relationship.

Previous relationships come with legal “baggage”: children, pre- and postnuptial agreements, divorce agreements, business arrangements, unequal wealth between partners, and outdated estate planning documents. These issues and others should be addressed early with new estate plans.

However difficult, the first step is to discuss your plans with family members. The next step is formalizing your plans through your estate plan. The goal is to avoid probate. Whatever the specific scenario, it is important to consider these eight factors:

1. Are the estates of both parties equal? If the individuals in a newly married couple are not equally wealthy, legal documents like a prenuptial agreement or an agreement to keep your estates separate should be considered before an estate plan is drafted. The goal is to have an estate plan that ensures your wishes will be carried out for your new spouse/partner as well as for others you care about.
2. Whose name is on the deed to the house? It’s easy to decide that you will live in one person’s house or the other’s. You may base that decision on factors such as location, mortgage payments and/or school district. But if you are in a domestic partnership, you also have to specify what will happen in case of death if the surviving partner’s name is not on the deed. You do not want to leave your partner without a place to live.
3. Who inherits specific assets? The new estate plan should indicate who inherits items such as heirlooms, artwork and jewelry. Specific wishes should not simply be voiced but set out in writing.
4. Do you both have powers of attorney? POAs are very important documents that give the person you name legal authority to act on your behalf, making decisions for you if you become incapacitated. Depending on state law, you each may need two separate POAs, one for financial decisions and another for medical, including end-of-life, decisions. State law should be consulted when drawing up these documents.
5. Who will have guardianship of minor children? All aspects of what may happen to children from a previous relationship need to be considered and a plan formalized within your estate plan. You and your partner should consider who will have guardianship of children — your new partner or your former spouse — should you die or become incapacitated. If you were previously married, some decisions may be governed by the divorce decree.
6. Who will have guardianship of disabled or special needs children? As with children from previous relationships, the future requirements of disabled and special needs children must be addressed. The issues that need to be considered include what type of trust needs to be established to protect the child’s income, who will be the trustee of that trust and who will have guardianship of the child.
7. Will beneficiary designations change as a result of your new relationship? Retirement plan (401(k)s, individual retirement accounts, Roth IRAs, etc.) beneficiary designations generally take priority over estate planning documents. Be sure to update the beneficiaries in all such accounts so that the proceeds are handled according to your wishes. Similarly, you may wish to update beneficiary information for financial assets such as bank accounts, brokerage accounts and insurance policies. Business assets are another asset category that must be addressed.
8. How will you handle federal and state taxes? Taxation rules are different for married and unmarried couples at both the federal and state levels. Other taxes to be considered include capital gains, gift and income taxes.

It is important to remember that new relationships do not change old ones. If you come to your new relationship with your own home, assets, collectables, traditions, children and grandchildren, creating a new estate plan can be complicated as you try to balance the needs and expectations of your new spouse/partner with the needs and expectations of the people who have been in your life for years. These emotional considerations must be further balanced with complicated financial rules and regulations that limit the choices you have if you want to minimize the amount of tax that may be due. Consulting a tax professional who can guide you in making the best decisions for you is part of the prudent course of action.