A husband and wife in their first marriage, with children, are pretty easy to handle from an estate planning perspective. That's mostly because their beneficiaries are exactly the same: the survivor of them, and their children (in that order).
Things get a bit more difficult when you are talking about a situation where the husband and/or wife have children from a prior marriage. In many cases the beneficiary situation will be something like this:
For husband: wife if she survives, otherwise to my children
For wife: husband if he survives, otherwise to my children
A slight but important difference. The concern for the first to die is to make sure his or her children don't lose out. There are a few ways to do this. Some thoughts:
1. Consider current property ownership. In many cases, the ways other married couples hold property (jointly, or as each other's designated beneficiaries) aren't appropriate AT ALL. Upon the death of the first to die, everything goes outright to the survivor. The survivor can then alter his or her estate plan to leave all of his or her property to his or her children only. Not what the first to die wanted, and arguably not fair.
2. One solution is a trust. Instead of getting the property of the first to die outright, the survivor gets the benefit of it for the rest of his or her life. But when the survivor dies, the trust property reverts to the children of the first to die. (The survivor's children would get all of his or her property via the survivor's trust at this same time.) This can work, but how well it works depends on how the survivor approaches the trust. Let's say that John and Mary Smith both have children from a prior marriage (two each), and trusts containing $1 million each. John dies. How should Mary pay living expenses for the rest of her life? May Mary drain John's trust of its assets before she starts taking assets from her own trust? This will lead to a situation where John's children can be disinherited.
Another important point: who's the trustee of the trust for the survivor? Is it Mary? One of John's children? Mary AND one of John's children? I can see problems with all of those possibilities. A corporate trustee may be helpful.
3. Agreement. Another option: a written agreement between the two spouses to make the children of both of them the ultimate beneficiaries of the estate. So, to go back to the John and Mary Smith example:
John dies. His property is held in trust for Mary's benefit for the rest of her life.
Upon Mary's death, the remainder of John's trust passes equally to his two children AND Mary's two children. And the remainder of Mary's trust passes in the same way.
One problem: what if Mary wants to remarry (no pun intended)?
