March 2011 Archives

Surviving Spouse's Use of the Home in Second Marriages

March 11, 2011,

A common provision in wills and trusts, where one of the couple in a second marriage owns the marital home, goes something like this "My surviving spouse shall have the right to reside in the home for so long as he/she desires, provided he/she pays all taxes and insurance premiums thereon and shall maintain the premises in good order and repair. Upon his/her vacating the premises, the same shall be sold and the net sale proceeds distributed to my children in equal shares, per stirpes."

Sounds fair, doesn't it? After all, the surviving husband or wife gets to live in the house as long as they like, rent-free, subject only to payment of the carrying charges. In practice, however, the plan carries a significant defect. It puts the surviving spouse in a "Catch 22". If they find the house is too large, too difficult or too expensive to maintain they have the choice to leave, but then face the prospect of a significant expense to purchase another residence out of their own funds or, in the alternative, the cost of rental which may add thousands of dollars in monthly outlay.

For this reason, we recommend that the surviving spouse gets not only the use and enjoyment of the home for life, but also the use and enjoyment of the proceeds of sale of the home for life, to either purchase a smaller home or condo or use the income from the sale of the home to pay for a rental apartment. In our view, the children of the previous marriage lose nothing. The surviving spouse could have lived in the house for life so why not give him or her the flexibility to trade down as they get older? If there are excess sale proceeds, these can be invested to provide additional income to the surviving spouse. The co-trustee, perhaps the attorney as previously suggested in these pages, makes sure the funds stay intact for the deceased spouse's children after the second spouse dies.

A word of warning about leaving the house to the spouse for life. The trust or, if there is no trust, the children themselves, remain responsible for major repairs such as a new boiler or a new roof. As such, leaving a home in trust for the lifetime of the surviving spouse in a second marriage may end up a burden to your children. Good planning by a New York elder law estate planning attorney will consider whether the home should be sold within a fixed period, perhaps between two and five years from the date of death, to avoid this problem.

Prenuptial Agreements

March 1, 2011,

by Michael Ettinger, Esq.

Prenuptial agreements ("prenups") are contracts entered into by a couple before marriage setting out the rights of the parties in the event of divorce or death. Less common is the postnuptial agreement, with similar terms, but executed by the parties after marriage.

Who signs these types of agreements and why? Often couples marrying for the second or more time will have children and/or substantial assets at the time of remarriage. They may wish to insure that all or some of their assets go to their children and not to the new spouse, who may have children and assets of their own. Even with a will which leaves everything to one's children, without a prenup the surviving spouse is legally entitled to claim about half of the deceased spouse's estate. Having been married before, these couples know that sometimes things do not work out and wish to simplify matters in the event of a divorce, including whether or not alimony will be payable.

In the prenup each party sets out a list of their separate property, i.e. what they owned prior to entering into the marriage. The agreement then sets out the division of property in the event of divorce as well as the inheritance rights between the parties. While most prenups provide that neither party will inherit from the other, it is not unusual for the parties to partially waive those provisions after a few years and execute a will or trust leaving assets to the spouse despite the prenup. Other ways to leave assets to the spouse are by making some assets joint or naming the spouse as beneficiary on IRA's, annuities or insurance policies. The prenup may also contain a "sunset provision" that it expires after the parties have been married for a set number of years.

When there is great economic disparity between the parties, or one of them owns a business, the wealthy spouse may want to protect themselves (as Donald Trump is well known to have done) and, similarly, the less well off spouse will want to establish what they will receive in assets and/or alimony in the event of divorce. If there are business partners of one of the spouses, they may want protection so that the new spouse does not become a partner in the business by way of inheritance.

In our experience, prenups do not work well with younger couples about to enter into a first marriage. They are considered unromantic and usually the young couple does not have sufficient assets to be concerned. While some of them may be coming into substantial inheritances, the invention of the Inheritance Trust has solved this problem. Parents may now leave the inheritance to a trust created by a New York estate planning attorney that protects the assets for their son or daughter in the event of divorce and pass it by blood, instead of by marriage. In the event of death, the child's spouse has no right to make a claim against a trust set up by a third party, such as the parents or the deceased spouse.