Is your current Mr. or Mrs. Right not your first spouse? And do you have kids from another relationship? Second marriages can be wonderfully fulfilling, but step families come with built-in tensions. If this is you, it’s essential to consider an estate plan. Otherwise, the state of Arizona has a plan, and its rules almost certainly will not be what you want.
If a person dies without a Will, it’s called “intestate,” and state law determines how that person’s property is distributed. One common surprise: Surviving spouses don’t always automatically receive their deceased spouse’s property. If a decedent has no Will, has a spouse, and has children from a prior relationship, the spouse and all kids split the decedent’s probate assets, 50% to the spouse, and 50% to the decedent’s kids. Even estate planning professionals often don’t get this right or may not be informed about children from a long-ago marriage. That’s not all that surprising in Arizona, where retirees often remarry other retirees. Prior children may have little involvement in these late-in-life marriages. A surviving spouse’s reaction may be, “What on earth do they have to do with this?”
Harry and Wanda marry in mid-life and Harry moves into Wanda’s home, which she and her late husband purchased years ago. Even though the home is the family home, neither Wanda nor Harry even thinks about changing the title. The couple has a few joint bank accounts and retirement accounts naming each other as beneficiary. Wanda has two kids from a prior marriage; they are now grown, live in other states, and rarely visit. Wanda dies with no Will. The joint and retirement accounts pass to Harry. If Wanda makes no other arrangements, Harry will become owner of half the home, and Wanda’s kids will become owner of the other half.
Co-ownership of real estate is almost always tricky, but it can be really awkward when you co-own with step-kids you barely know. What usually happens? The surviving spouse might have to buy out the kids’ shares or sell the home and split the proceeds. Either negotiation can be unpleasant when you’ve just lost your spouse and viewed the property as your own home for many years.
For Harry and Wanda, the result could have been avoided by Wanda 1) executing a Will stating that Harry gets the house, 2) changing the deed to name Harry as joint tenant with right of survivorship (or, probably better, community property with right of survivorship), or 3) executing and recording a beneficiary deed naming Harry as the owner at her death.
If Wanda instead did want her children to get the house but only after Harry’s death, Wanda could grant Harry a “life estate” or place the residence in a trust, which could have terms that determine when the house would pass to the children (such as upon Harry’s remarriage, move to a care home, or death). We are partial to the trust because it provides the greatest degree of clarity and flexibility.
While it’s especially important for people in second (or more) marriages to analyze what happens to their assets at death, it’s a good task for everyone: 1) Determine how you hold title to each asset and every account. 2) Check to see if you have beneficiaries named. 3) Consider what will happen if you make no changes. Is that what you want? If not, take action.