Providing for Children of a Previous Marriage for L3Harris Employees

According to a recent study conducted by the Pew Research Center in 2022, it was found that providing financial support for children from a previous marriage is a common concern among individuals aged 60 and above. The study highlighted that approximately 40% of adults in this age group have children from a previous marriage, and many express the desire to leave an inheritance for their offspring while also ensuring the financial security of their current spouse. This indicates that the need to address estate planning considerations for blended families is a significant concern for L3Harris employees nearing retirement.

What Is the Purpose of Providing for Children of a Previous Marriage?

Unless you specify otherwise, the majority of your assets will transfer to your spouse upon your death if you are a married L3Harris employee. This implies that your spouse will own the majority of family assets. If you have made other provisions, you may have given your spouse sole authority over the disposition of these assets upon his or her death. This is typically not a concern in traditional families, as the parents typically pass on the family assets to their offspring. However, the so-called traditional family is increasingly the exception rather than the norm.

When you must provide for both your current spouse and your offspring from a previous marriage, remarriage can create numerous estate planning concerns. In many instances, remarriage results in a situation of 'yours, mine, and ours.' In other words, you or your current spouse may have children from a previous relationship, and the two of you may decide to start your own family. If you remarry later in life, your new spouse may not cultivate a stepparent relationship with your former spouse's children and may feel little responsibility toward them. Things could become extremely complicated after death. For L3Harris employees to whom this applies, it is crucial that you take immediate action to ensure that your estate is distributed in accordance with your wishes.

Since wives statistically outlive their husbands, 'she' and 'her' will be used to allude to the surviving spouse throughout this discussion.

Why the Logical Solution Is Typically the Worst Solution

Some of our L3Harris clients in this situation may believe that it is simple to provide for your surviving spouse and your offspring from a prior marriage. You will allow your spouse to live rent-free in your home for the remainder of her life, supported by the income from your investments. Then, upon her passing, the family assets will be transferred to your offspring from a previous marriage. That should make everyone satisfied, correct? Wrong. In the vast majority of cases, this plan will make everyone miserable and can be a source of unending conflict between your surviving spouse and children.

Your Children's Investment Objectives Won't Match Your Spouse's

Our L3Harris clients whose spouse is supported by the income from their investments will want those investments to generate the highest possible return. Consequently, investment decisions will likely prioritize high-yield income investments. However, the offspring of these L3Harris employees will desire principal growth so that their eventual inheritance is not diminished by inflation or other factors. It is highly unlikely that both parties will be amenable to compromise.

Your Children Will Be Watching Every Penny Your Spouse Spends

It is imperative that these L3Harris clients remember that the size of your children's inheritance is directly related to how much your spouse spends during her lifetime. Consequently, your spouse may have her every action scrutinized. If she purchases a new vehicle, your offspring may question why she is wasting their inheritance.

Your Children Will Effectively Be Waiting for Your Spouse to Die

In many instances, the age gap between spouses in a second or third marriage is substantial. For these L3Harris employees, bear in mind that if your children do not receive their inheritance until after the death of your surviving spouse, they may face a lengthy wait. They could very well be senior citizens by the time your assets are transferred to them.

What You Can Do

There are numerous measures L3Harris employees can take to avoid such unfavorable circumstances. Some are straightforward, while others are complex. Generally, you will need the assistance of an attorney or estate planning professional.

Most Importantly, Eliminate the Money Connection

Rather than making the inheritance of your children contingent on the death of your spouse or effectively granting one party control over the financial affairs of the other, these L3Harris customers should consider severing the economic connection between the surviving spouse and the children. A plan in which your children's inheritance is not contingent on the actions of your spouse (or vice versa) is likely to be more satisfying for all parties involved.

Use Life Insurance

We'd like our L3Harris clients to bear in mind that life insurance can be an especially effective way to provide for children from a previous marriage. When contemplating the use of life insurance for this purpose, you have several options. You can designate your offspring as beneficiaries of your life insurance policy. Alternatively, your offspring can purchase insurance policies on your life, and you can gift them the premium payments.

You can also create an irrevocable trust to hold the life insurance policy you purchase for their benefit. This third option is particularly suitable for L3Harris employees with minor children. Your children are the beneficiaries of the life insurance policy, and you are assured that they will receive a certain quantity of money upon your passing. And if properly structured, life insurance proceeds can avoid being diminished by estate taxes and go directly to the beneficiary.

Name Your Children as Beneficiaries on Your Retirement Plan

Making your children the beneficiaries of your IRA or qualified retirement plan is another method to provide for their future needs. The L3Harris employees who are considering this option should be aware that they may need their spouse's written consent if they wish to designate a beneficiary other than their spouse for certain retirement plans. However, even with this permission, your problems may not be resolved. The distribution procedures for beneficiaries who are not spouses can be extremely complex.

Generally, the beneficiary of your retirement plan will be taxed on the income received.

Create a Prenuptial Agreement

Prenuptial agreements are not for everyone, but they can help eliminate conflicts between your future spouse and your offspring from a previous union. A prenuptial agreement is a written contract between prospective spouses that outlines the ownership and distribution of assets during the marriage, in the event of a divorce, and upon death. Both parties' financial rights and responsibilities are spelled out, and the contract cannot be modified or terminated without their consent.

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Make Your Children Joint Owners

Giving your offspring joint ownership of specific assets during your lifetime will ensure that they inherit those assets after your passing. However, there are substantial hazards associated with this strategy that L3Harris clients should be aware of. In addition to the possibility of significant gift tax consequences, our L3Harris clients must be aware that, as joint owners, children typically have unconstrained access to the assets. This means that they may have the right to transfer the assets for their own benefit. The assets may be at risk from your child's creditors if he or she experiences financial difficulties or gets divorced.

Leave Your Surviving Spouse a Lump Sum

L3Harris clients may also contemplate leaving their surviving spouse a lump sum and dividing the remainder of their assets among their children. Or leave a lump sum to each of your offspring and the remainder to your surviving spouse. Despite the apparent simplicity of this strategy, it can be quite effective in certain situations, particularly if you have a small estate and few assets.

If you choose this option, L3Harris recommends that you have an accurate estimate of your estate tax liability and other expenses. Otherwise, your remaining assets will be lower than anticipated.

Qualified Terminable Interest Property (QTIP) Trust

A qualified terminable interest property (QTIP) trust is typically used in conjunction with a bypass trust to provide for children from a prior marriage or other beneficiaries. When you pass away, your spouse will receive the trust's income for the remainder of her life. However, we would like our L3Harris clients to be aware that she will not be able to remove the assets from the trust, nor will she be able to choose who receives the assets upon her death. When the trust is created, the ultimate beneficiary is designated.

Caution: In the majority of instances, this option is undesirable because it does not eradicate the financial connection between your surviving spouse and your children. However, a QTIP trust may be a viable option for our L3Harris clients who are confident that a financial relationship between their spouse and offspring will not cause any issues.

What You Can't Do

Disinherit Your Surviving Spouse

In almost every state, it is illegal to completely disinherit a surviving spouse. Typically, a statutory right of election is granted to surviving spouses, allowing them to claim a certain percentage of the deceased spouse's estate. In many jurisdictions, surviving spouses are entitled to one-third of the deceased spouse's estate, while in others, they may claim half.

If the surviving spouse receives less than his or her statutory share of the estate in the decedent's will, the surviving spouse may exercise the statutory right of election to make up the difference. The surviving spouse must initiate legal proceedings in order to claim the right of election. The local probate or surrogate court will then order the beneficiaries or the estate's personal representative to contribute a proportional share of the estate's assets to satisfy the surviving spouse's right of election.

In some jurisdictions, the spouse's right of election applies only to probate-transferred assets. In addition, some states have adopted a graduated right of election in which the percentage that a spouse can claim depends on the duration of the marriage.

Conclusion