You are single again after the death of your first spouse. Or maybe you are divorced. Now you have met someone and have fallen in love, again, and are getting married for the second, or third, time. You have accumulated some assets during your prior marriage(s) and you want your children from your prior marriage(s) to benefit from your estate.
Is there a way that you can protect your hard-earned assets for your children and keep them out of the hands of your new, and often much younger, spouse? The answer is maybe. There are certain rights your spouse would have in your property upon your death.
If you do not have a will, upon your death, your new surviving spouse would have a right to take a share of your estate under the laws of intestate succession. Your new surviving spouse would be entitled to take the first $140,000 of your estate, in 2012, and the remainder would be split 50/50 between your surviving spouse and the children from you prior marriage(s).
For example, in one case, a fellow was widowed when his wife of more than 30 years passed away. His children from that marriage were all grown up and out of the house. He met someone, fell in love and got remarried. Two weeks after the remarriage, he died. He had done no estate planning, no will, no trust, no nothing. His estate was in excess of $800,000. Because he had left no instructions, his wife of only two weeks received nearly half a million dollars from his estate, whereas his children only received a little over $300,000. This is probably not the intended result.
If you do have a will and don’t leave your spouse more than a certain statutory amount, upon your death, your surviving spouse could elect to take against your will and receive a larger share of your estate. Your surviving spouse may also have a homestead allowance, exempt property allowance and/or a family allowance.
If you are a man, your wife may also have a dower interest in your property upon your death. However if you are a woman, your husband does not have a dower interest in your property. It does seem a little sexist that wives have a dower interest in their husbands’ property, but husbands do not have a dower interest in their wives’ property. However, it’s a holdover of an 1846 statute that has not been changed and is still in force.
Michigan law does allow these spousal rights to be waived by your new spouse. All you would need to do is have your new spouse sign a contract, agreement or waiver of all of his or her rights in your estate after a fair disclosure of your assets. One type of agreement or contract that would be an effective waiver of these rights would be a pre-nuptial agreement.
In your pre-nuptial agreement, you and your soon-to-be spouse, would agree to waive all rights in each other’s property upon each of your deaths. You would each have to disclose the nature and extent of your property to the other. With this agreement, your new spouse would no longer have any of the rights or allowances or claims against your property or you estate upon your death. It could go all to your children from your first marriage.
But how do you get your new spouse to sign a pre-nuptial agreement? Firstly, as soon as things start getting serious between you and your soon-to-be spouse, start discussing how you want to leave your assets and property to your kids. Springing it on him or her right before the wedding is probably not the best time to present it or expect it to be signed.
You could also plan for it long before you need it and when you and your first spouse are still living. Both you and your first spouse would each create a fully-funded trust with specific instructions in the event of a remarriage after the death of one of you. Fully-funding your trusts means that you have properly named your trusts or individuals as owners, beneficiaries and/or additional insureds of all of your accounts, property and other assets.
Once all of your assets have been properly funded into your trusts, they would be subject to the instructions you each have put in your trust to protect those assets from claims of a new spouse if the survivor of you were to be remarried. I call this remarriage protection.
For example, in my trust, I have a provision that says if after I die, Emily marries Thor, her Swedish personal trainer, distributions out of my trust to Emily will stop, unless Thor signs a pre-nuptial agreement. I have specified that in this pre-nuptial agreement, Thor would have to waive all of his rights to Emily’s assets.
This provision has two main benefits. Firstly, it protects all of Emily’s assets from claims by Thor upon Emily’s death. Even though Thor never would have a claim against the assets in my trust, without the pre-nuptial agreement requirement in my trust, Thor could have a claim against Emily’s assets and the assets in Emily’s trust.
Secondly, it takes the pressure off of Emily from asking Thor for a pre-nuptial agreement, because I am asking for it in my trust. Emily could say to Thor: “Thor, my love, that dead guy Matt says that I get no distributions from his trust unless you, Thor, my love, sign a pre-nuptial agreement.”
Well, Emily said fair is fair, and put Bambi protection in her trust. If after Emily dies, I marry Bambi, my aerobics instructor, Bambi has to sign a pre-nuptial agreement or distributions to me from Emily’s trust, stop. These provisions in our trusts protect our entire marital estate in both of our trusts for our children, Luke and Elizabeth.
You can protect your hard-earned assets for your children and free from any claims of Thor or Bambi. With proper planning, you can control your property while you are alive and well, provide for you and you loved ones in the event you are mentally disabled, and after you are gone, you can give what you have to whom you want, when you want, the way you want.
By: Matthew M. Wallace, CPA, JD
Published edited December 16, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Protecting your assets from your new spouse