Special Estate Planning Concerns for Second Marriages

If you’ve recently married for a second time or are planning to do so, it’s important to meet with your attorney to be sure all your assets will still be properly distributed in the future. Even if you think your new spouse is very trustworthy, you must understand how Texas community property laws may affect all preferred beneficiaries when you pass away one day.

In order to minimize future misunderstandings, many spouses in second marriages enter into property agreements that help balance out the interests of all children from prior marriages – as well as those who might be born into your new one.

Before reviewing some of the basic legal documents your lawyer may need to redraft on your behalf now that you’ve remarried, it will be helpful to note some of the complications that can develop when newlyweds simply assume their current estate plans don’t need to be updated.

Careful planning can help you minimize problems with the future disposition of your estate

  • Suppose you’ve married a much younger new spouse and you have children from your first marriage. What will likely happen to your home and all other possessions upon your death? Sometimes, newlyweds just assume that all will go well once the older spouse dies first – and that older children of the deceased spouse will just wait many years until the new spouse passes dies to inherit the family home and other wealth.

Unfortunately, bitter legal fights can erupt between your adult children and your surviving spouse under this type of scenario. What’s often best is to leave an insurance policy (and possibly other funds) in a trust, so that your children can receive specific amounts of money upon your death – and then other property or wealth years later when your surviving spouse finally passes away;

  • What if your new spouse keeps insisting that if you pass away first, he’ll make sure your kids from an earlier marriage will inherit all that you wish, without stating this in newly executed documents? Can this type of arrangement ever be risky? Yes, it can. It’s always possible that you and your new spouse will experience hard times financially at some point in the future. If that happens, keeping sincere early promises may no longer seem reasonable to a surviving spouse left with only a modest amount of money.

Always update your estate plan when you remarry. And if you and your new spouse hold very different attitudes toward certain financial bequests, go ahead and meet with different attorneys to update your estate plans separately. However, make sure you both understand your responsibilities to your new spouses under the new estate plans (and ask your lawyers to review both plans to be sure they won’t precipitate any crises);

  • Will it cause unnecessary confusion for spouses in a second marriage to hold joint bank accounts in the future to pay certain mutual expenses – without jeopardizing the later disposition of assets when one spouse dies? That arrangement should work out fine, although you should both consider also maintaining separate bank accounts to help you pay expenses tied to all separate properties you brought into the marriage.

Should new spouses carefully revise named beneficiaries in POD and retirement accounts?

The answer to that question is almost always, “Yes.” Be sure to bring information about all accounts you have when meeting with your Houston estate planning attorney. You should also bring copies of any property deeds in which you’re named — and information about any trust accounts you currently have (or may desire). Your attorney will also need to see copies of your current Last Will and Testament, 401k and POD accounts, all retirement accounts and all insurance policies.

If you need any advice about your current estate plan due to an upcoming marriage – or divorce, please contact one of our Murray Lobb attorneys at your convenience. We will look forward to providing you with the documents you’ll need to feel confident and secure about your entire family’s financial future.

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Common Reasons for Creating a Spendthrift Trust

Nearly all of us have relatives who need extra help managing their income and assets. When we can, we try to find ways to help them. In some instances, you might have a grandson or granddaughter who’s having trouble holding down a steady part-time job during college – or trying to make ends meet after battling a lengthy addiction. Your troubled relative might also be older and starting to struggle with handling all his monthly financial affairs.

Whatever the individual’s special needs may be, you can often help by making the person a beneficiary of a spendthrift trust.

How Should You Define This Type of Trust to the Beneficiary?

You may first want to simply say that, because you greatly care for this individual, you want to remove all or most of her current money management problems from her life. You can then say that you’ve named the person as a beneficiary of a special trust account that will be managed by a trustee. You should then quickly point out that you’ll be personally choosing the exact terms governing the trust so the trustee can properly meet specific needs of the beneficiary.

Should the beneficiary ask if she can personally manage the money, you must be ready to say that you have considered that alternative and prefer to disburse the funds over time. You might also note your desire to prevent the funds from being taken by untrustworthy creditors. (Of course, there are legal exceptions that do allow some creditors to reach these funds, and they’ll be briefly addressed below).

It’s also useful to tell the beneficiary that the funds or property that you’ll be placing in the trust as its creator (grantor) are generally referred to as the trust principal.

What Basic Terms and Provisions Are Normally Included in a Spendthrift Trust?

As your Houston estate planning lawyer will tell you, specific language must be included in the trust document, making it clear that you’re creating a spendthrift trust, in keeping with Texas law. This enabling language is designed to fully protect all the property and funds that you’re placing in the trust from others who might try to illegally reach them. All of this is clearly explained in the Texas Property Code, Title 9, entitled “Trusts.”

Your spendthrift trust language will clearly state that since the beneficiary has no right to directly reach and control the funds – neither can most creditors. Most grantors also include some specific language indicating that they are trying to provide for the beneficiary’s general needs.

As the grantor/settlor you must also clearly state all the trustee’s rights, duties and obligations while administering the trust. The trustee’s job can be a very difficult one, especially if the beneficiary decides to legally challenge the trustee by demanding large sums of money for serious medical, educational or basic living expenses not expressly referenced in the trust.

When Can Creditors & Other Parties Successfully Obtain Funds from a Spendthrift Trust?

The laws in most states allow creditors that can prove that a beneficiary owes them money for basic “necessities” (like shelter or food) to win judgments and collect funds from these types of trusts. Other legal obligations that can be paid out of spendthrift trust funds (once legal action has been taken) include child support, alimony or support of a past (or current) spouse and certain government claims.

When funds are periodically released to a beneficiary, creditors can also try to obtain them based on judgments they’ve obtained. 

Please feel free to contact one of our Murray Lobb attorneys to learn more about the various types of trusts and other estate planning tools that we can draft to meet all your needs, including a spendthrift trust.