It’s Wedding Season!
Looking Beyond the Honeymoon…
Wedding season is in the air! Wedding planners around the world are helping
families plan every detail! Choosing the food, flowers and which invitations
to send to family often invokes a sort of euphoria around the bride and
groom, and everyone is understandably focused on the BIG day. So much
detail is placed on the wedding itself, that during the planning process
important things are often overlooked in the excitement of it all. Estate
planning and premarital agreements should be added to the checklist of
things to be addressed, prior to saying, “I DO!”
Premarital agreements play an important role in estate planning. For example,
they provide documentation for the IRS as to which assets will receive
a stepped-up basis on the death of one spouse, and which assets are includable
in the deceased spouse's estate. They can also resolve disputes among
family members if the distribution of one spouse's separate and community
property varies from the distribution of the other spouse's separate
and community property.
Community property is a form of property ownership recognized in only nine
states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,
Washington, and Wisconsin. The marital "community" consists
of all assets acquired during marriage, except those acquired by inheritance
or gift. Any income acquired by either spouse during marriage is automatically
split so that each spouse owns an equal half (whether it comes from wages
or self-employment). Since each spouse owns an equal half of the community
property, each may dispose of his or her half of community property in
a will or trust as he or she so desires. It does NOT have to be given
to the other spouse.
Separate property are those assets that are acquired by one spouse before
marriage, during marriage by gift or inheritance, or in exchange for separate
property or money. In California, income that is generated by separate
property remains separate property. However, commingling of separate property
assets with the community can cause it to become community property. This
often happens with checking and other financial accounts where both spouses'
names are on the accounts, or if the money is used to support the community.
Planning for a Second Marriage?
Persons marrying for a second time may want to consider a California premarital
agreement. A premarital agreement can serve to identify the assets that
are owned at the time of the marriage and to ensure that those assets
and any appreciation in those assets will remain separate property. A
premarital agreement can also set forth the parties' understanding
with respect to their retirement plans.
Merging two families and finances inevitably brings challenges, so it is
particularly important to have a solid estate plan. A common concern among
blended families is how to divide assets so that all children are included
fairly after the death of one or both spouses.
People often find themselves questioning how do you maintain fairness,
be impartial and get along with your spouse all at the same time? The
creation of a revocable living trust will help to ensure that your wishes
are carried out and that your children are protected. For example, an
A-B trust or Q-TIP trust allows you to have your share of the assets held
in a trust for your spouse's health, support, maintenance, and education,
and then passes the remainder of your assets to your children upon your
spouse's death. While this does not guarantee that your children will
inherit your "full share," because your spouse may utilize some
of the assets, it does ensure that they will receive the balance of your
share and will not be disinherited.
If you and your spouse have different beneficiaries, it is extremely important
to have a Q-TIP trust rather than an A-B trust if there is any possibility
that the estate of either spouse could ever exceed the Federal Estate
Tax exclusion amount. This is important because with an A-B trust, the
amount of the decedent's estate over the Federal Estate Tax exclusion
amount will be allocated to Trust A, and ultimately be distributed to
the surviving spouse's beneficiaries, rather than to the deceased
Newlywed Planning Center
Include estate plans in your wedding plans. Given the high divorce rate,
an excellent consideration prior to marriage is to establish a California
premarital or postnuptial agreement. With financial issues being a major
cause of divorce in Southern California, couples who establish premarital
agreements are actually taking a positive step toward preventing future
financial misunderstandings. At our law corporation, we can fully assist
you with a premarital agreement and estate plan tailored to your individual
objectives and needs. Call today to arrange for a consultation to discuss
your estate planning needs.