Estate Planning and Remarriage

My thanks to Patti Handy (www.PattiHandy.com) for conducting this interview about estate planning issues and remarriage.  You can click on the link above for the audio.​  The transcript is below:

Patti Handy:  Hey, welcome to Money Rules 101. I'm your host, Patti Handy. Today, in studio, I have my good friend, Rob Mansour, who is an estate planning attorney here in Santa Clarita. Today's topic of conversation is the estate planning upon remarriage. We've discussed after divorce and after death of a spouse and just starting over and this one is particularly important to me because I am divorced and may or may not get remarried someday.

Rob Mansour:   A lucky man is who that will be!

Patti Handy:  But it's important for me to understand. There'll be blended families. We each have kids. It's all kinds of nuances happening within that, so share with out listeners some of the things that you recommend for those getting remarried.

Rob Mansour:   Well, I think that when you're getting remarried, especially if you're getting remarried later in life, in your 40s or your 50s.

Heck, even in your 60s, okay? People are getting remarried all the time, second, third time, so I think it's important, especially when you have children, each of you has children. The husband has children, the wife has children. If you ever needed a plan, that would be a very good time to have one because the amount of things that can go wrong are innumerable and so, that's why it's called an estate plan is because you and your new husband or you and your new wife need to sit down and talk about, "Okay, what are we gonna do now? What's the plan?"

Just like if you have an earthquake drill at your house and you know where everybody's gonna go if there's an earthquake. We all need to talk about what's important, so for example, if you have a blended family, so I had a client and her name was Lynn. She got married to this new guy and his kids didn't like her very much. He had adult children and they never really liked her.

Patti Handy:    Ouch.

Rob Mansour:     She was really worried. What if he dies first? Is she gonna be out of the house? Is she gonna have to move out? Is she going to have to relinquish all the estate to her stepchildren or are they going to be just waiting for her to die? Everyday, they call her on the phone and say, "Hey, Lynn. How you feeling today? Let's bake you a cake. We sent you a cake. You should eat the whole cake in one sitting."

She says, "Listen, when my husband dies, I want his children taken care of. I want to pay them off and I don't want to worry about them anymore." We created an estate plan that said exactly that. If her husband died first, she was gonna write a check for $100,000 to each of those kids from an insurance policy and also some bank accounts somewhere.

They were gonna leave her alone after that, so sometimes, we have to talk about that. Also, another issue is minor children, so, let's say, I get remarried and I have minor kids. If I pass away, who's gonna take care of my minor children? Is it gonna be my new wife, or is it gonna be my ex-spouse, or is it gonna be my brother or a sister of mine?

Each spouse has to talk about that if there is minor children involved. Also, how am I gonna provide for those minor children? Where's the money gonna come from?

Patti Handy:     Yeah.

Rob Mansour:   It especially becomes difficult if one spouse is much wealthier than the other. In one case, let's say, the wife has a lot more money and a lot more resources than the husband. Well, if she dies first and her family inherits, is he out on the street? Is he gonna have to sell fruit at a freeway off-ramp somewhere to make ends meet or is he gonna get to stay in the house until he dies? I recently did a plan for a Friendly Valley couple out here in Santa Clarita and we made it very clear that after the husband dies, the wife gets to stay in the house until she passes away, that's what's called a life estate. How do we do that? We do that in the living trust, we spell it out. I always tell clients, too. The more we spell things out, the less likely we're gonna have problems later on.

Patti Handy:    Sure, yeah.

Rob Mansour:    It's like a football team taking to the field. If they know what plays they're gonna run and they've worked on them and they've practiced them, they are more likely going to have a better shot at winning the game than if they just take the field and just run around with no plan whatsoever.

Patti Handy:   Makes sense.

Rob Mansour:  That's a very important issue. Also, what happens after the first death? After that first death, does the surviving spouse get to keep home the money or is some of that money gonna go to some children somewhere?

Just like in the case of Lynn that I mentioned earlier. Another thing, sometimes, clients come to me with no estate plan whatsoever and in those cases, we might say, "Okay, are we gonna do separate trusts?"

His, hers, and maybe ours, so she has a trust with her stuff. He has a trust with his stuff and they operate together and they speak to each other, but they're still independent of one another.

Another very important issue is what is community property and what is separate property and we need to spell all that out because, as you may know and others may know, whatever you accumulate during your marriage is presumed to be your community property. Also, what you bring to a marriage before you get married is generally your separate property; but that property, let's say, for example, a couple gets married. It's happened to me right now, a woman living in Lancaster.

She says, "Look, I know this was his house before marriage; but I've been dumping a lot of money into this place. We put a new roof, we put a patio cover. I'm paying for the gardener, I help pay for the property taxes; but he's still insisting this is separate property." We have to talk about those issues because your separate property, you totally control what happens to that; but community property not so much.

Sometimes, it's nice to create schedules of property. Schedule A will have her property, schedule B will have his, and schedule C might have our joint property or our community property on that. Another thing is what authority does the surviving spouse have, so if you pass away, is it gonna be the surviving spouse's decision or are you going to leave that decision with other people, like a sister, or a brother, or your mom, or your dad?

They might have the say over what happens with your estate or are you gonna allow your new spouse to do that? One strategy, by the way, is to create a plan for the first 10 years and then, see how things are going. If you really have a lot of faith in your new spouse and things are going very well, you may want to revisit your plan and do something new at that point. You might not be stuck with something for the rest of your life.

Of course, you're gonna have some accounts with beneficiaries on them, life insurance policies, IRAs, 401Ks. Is your new spouse going to be the beneficiary on those policies, or perhaps the sole beneficiary, or perhaps you want to spread that love around? Maybe she gets 50% of your IRA, but your children also get 50% of your IRA and of course, your spouse has a preference, if you will.

Your spouse has to sign off that it's okay with them not to get 100% and so, you're gonna find that there are ways to take care of your new spouse; but also, ways that you take care of your children or your loved ones from a previous relationship and so, that's why it's very important for the husband and the wife to sit together.

It doesn't really help if a client comes to me unilaterally and they say, "I just got married to this guy and I want to create my own plan." I say, "Well, that's great; but it will be so much better if he were in the meeting and all three of us created a plan that we all agreed upon, everything is above board. You sign off that it's okay with you. He signs off it's okay with him and everybody's happy."

Patti Handy:   Okay.

Rob Mansour:   It can be very tricky. You're absolutely right.

Patti Handy:   Let me ask you a question. If there is a couple, they both have kids and they're both remarrying, they each have their own living trust.

Rob Mansour:  Like a Brady Bunch kind of thing?

Patti Handy:   Brady Bunch, exactly. Each family has their own individual living trust.

Rob Mansour:   Right.

Patti Handy:   You said then you come together and you have another one that's his, hers, and ours.

Rob Mansour:  Yes.

Patti Handy:  Does that ours trump those two that are separate or how does that work?

Rob Mansour:  Well, each one of them, so, let's say, Harry has his trust and Sally has her trust, right? They have the Harry and Sally trust, a third trust. Those trusts only govern assets that are in the name of those respective trusts, so you're not gonna put an asset in all three trusts. It's either gonna go on Harry's pot, in the common pot, Harry and Sally's trust, or just Sally's trust.

Patti Handy:   Gotcha, okay.

Rob Mansour:   If an asset is sitting just in Sally's trust, so when I say sitting in, that means the title to the asset says, "Sally Smith's Trust", that's what it says, so that particular asset will be governed by Sally Smith's trust. They might have a house and they put that in Harry and Sally's trust, that's a separate document.

Patti Handy:   Right.

Rob Mansour:   That one will say what happens with that particular asset or you could just do a joint trust together. You say, "Hey, listen. We both agree that this is what's gonna happen when the first person dies and this is what's gonna happen when the second person dies." We do a different plan if the husband dies first or the wife dies first, we spell it all out in one common trust. Again, the less we leave to the imagination, the better.

Patti Handy:    Yeah.

Rob Mansour:   We need to really spell all those things out or do what we call separate schedules, we can say, "What's on schedule A shall go here, what's on schedule B shall go here, and what's on schedule C shall go here." But the husband and the wife agreeing to all that is very important and then, of course, the other issue is can the surviving spouse make changes to this common trust. If you do agree to a common trust, which I would not recommend necessarily if you're just newly remarried, leaving "carte blanche" to the surviving spouse to make any changes he or she wants, that may not be a great idea.

Patti Handy:    Sure.

Rob Mansour:   That's another very important issue.

Patti Handy:  Yeah.

Rob Mansour:  What changes can we make, if any, after that first death?

Patti Handy:  Yeah, and I would imagine with the health directives, if, God forbid, that one spouse were in a car accident or came down with something and they were a vegetable and not capable of speaking for themselves.

Rob Mansour:  Right.

Patti Handy:  Does that new spouse then have full reign over everything?

Rob Mansour:  Yeah, you want to spell it out in a little document, that's right.

Patti Handy:  Yeah, yeah. Exactly.

Rob Mansour:  Also, if your kids don't get along with your new spouse, what about disagreements about healthcare?

Patti Handy:  Yeah.

Rob Mansour:  Your new spouse might have one idea of what she wants to do.

Patti Handy:   Right.

Rob Mansour:   Your adult children may have a different idea of what they want to do and if you don't have anybody legally in charge, a lot of people think, "Oh, my spouse is legally in charge." That's not true, that's not true. If somebody has a dissenting opinion, now we have a standstill, a stalemate, so it's always good to have those documents that says who is in charge and in what order are they in charge.

Patti Handy:  This is definitely an experience where more is better. The more clear, the more you've got dialed in.

Rob Mansour:  That's right.

Patti Handy:   The better.

Rob Mansour:   Absolutely.

Patti Handy:  It's not less is more in this case.

Rob Mansour:     That's right. Don't leave it to the imagination.

Patti Handy:   Yeah, yeah. Good information, so obviously this can go on for a much longer topic of conversation and everybody's gonna have their personal story that they're gonna need to talk to you about. How can they reach you if they need some guidance?

Rob Mansour:   Of course, I think they can either call my office at the number's area code 661-414-7100 and they can make an appointment. Also, they can just visit the website, which is mansourlaw.com. Mansour is spelled M-A-N-S-O-U-R, the word law, .com.

Patti Handy:    Great, thank you so much, Rob, loved having you here.
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Rob Mansour:    Thank you for having me, appreciate it.