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 spouse's beneficiaries.
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.