The Investment Scientist

Why Estate Planning is Vital in Second Marriage

Posted on: March 20, 2012

[Guest Post by Christopher Guest] I have seen a number of articles declaring approximately 70% of all Americans do not have a will. If they died, that would mean the distribution of their estate would be controlled by intestate provisions. In my February 2010 Newsletter, I discussed the basics of intestacy. For those in second marriages, the importance of drafting an estate plan and not succumbing to the intestate provisions is very important, as demonstrated below.

As I mentioned in 2010, there is an order of priority in which beneficiaries inherit assets under intestate statues. Order of priority is governed by the familial relationship of the beneficiary to the decedent. In other words, family members related closer to the decedent generally get a share and cut-off those family members not as closely related. But, every state’s laws are different when determining this order or degree of familial closeness.

Intestate statutes also dictate what percentage a beneficiary will receive from the decedent. Each state has different rules related to that percentage a beneficiary is entitled to receive from the decedent.

The best way to demonstrate what I am talking about is to demonstrate how each local jurisdiction (Virginia, the District of Columbia and Maryland) divides out the probate estate of a person dying without a will. In our case, the decedent was a husband that was on his second marriage and has children (one from this marriage and another from the previous marriage). To further complicate the scenario, I will say the children were not minors and assume that the probate estate amounted to $100,000 after all taxes, estate expenses, allowances and debts were settled.

For Virginia, this scenario is governed by § Title 64.1, Wills and Decedents’ Estates, Chapter 1, Descent and Distribution), and it reads:

To the surviving spouse of the intestate, unless the intestate is survived by children or their descendants, one or more of whom are not children or their descendants of the surviving spouse, in which case two-thirds of such estate shall pass to all the intestate’s children and their descendants and the remaining one-third of such estate shall pass to the intestate’s surviving spouse.

In plain English, the second wife will only receive one-third (1/3) of the husband’s probate estate and the remaining two-thirds (2/3) will be split evenly between the children. In this case, the wife gets $33,333. As you can see, if the wife was going to rely on the full probate estate to live off of, then 1/3 of the estate is not likely going to cut it.

If there were no children from a prior marriage, the wife would have inherited everything and received the entire $100,000.

For Maryland, this scenario is governed by Maryland Code: Estate and Trusts, Title 3. Intestate Succession and Statutory Shares and it reads:

No surviving minor child, but surviving issue.- If there is no surviving minor child, but there is surviving issue, the share shall be the first $15,000 plus one-half of the residue.

In plain English, the second wife will receive the first $15,000 of the estate plus one-half (1/2) of the husband’s probate estate. The children split the remaining half. In this case, the wife received $57, 500. If the children were minors, the wife would have received only one-half (1/2) of the husband’s probate estate or $50,000.

For the District of Columbia, the scenario is governed by Division III, Decedents’ Estates and Fiduciary Relations, Title 19, Descent and Distribution and it reads:

Share of spouse or domestic partner.- One-half of any balance of the intestate estate, if one or more of the decedent’s surviving descendants are not descendants of the surviving spouse or surviving domestic partner.

In plain English, it means the second wife will receive one-half (1/2) of the husband’s probate estate. The children split the remaining half. In this case, the wife receives $50,000.

Three separate jurisdictions resulted in three different results and a perfect demonstration that estate planning is vital in second marriages.

1 Response to "Why Estate Planning is Vital in Second Marriage"

I have a will and have filed beneficiary paperwork for my retirement investments. Your readers know that 401k plan funds are not distributed by the terms of a will, right?

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



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