Recently in Blended Families Estate Planning Category

Reminder: More Estate Planning Opportunities for Couples After Windsor v U.S.

August 14, 2013,

A JDSupra post from last month offers a helpful reminder of the changing legal landscape for New York same sex couples who are married.

As virtually everyone knows, in late June the U.S. Supreme Court declared the main portion of the federal law known as the "Defense of Marriage Act" (DOMA) unconstitutional. The crux of the particular case, Windsor v. United States, related to the estate tax. Windsor, a New York resident, was forced to pay over $350,000 in estate taxes following the death of her wife, Thea Spyer. The couple's marriage was legally recognized in New York, but the federal government treated the pair as strangers.

Estate Planning Options
With the Supreme Courts ruling, issued by Justice Kennedy, the federal government is now required to treat all couples the same who are properly married under state law. This opens up a large number of new estate planning tools for married same sex couples in New York.

Most obviously that includes claiming the marital deduction on gift and estate taxes. As pointed out in the article, this deduction applies both to assets that pass directly (in a will) and those transferred via a trust. In these cases a trust known as a QTIP is common. QTIP refers to "Qualified Terminable Interest Property" trust and is often used to allow a surviving partner to benefit from asset before they eventually pass to another, like an adult child.

In addition, same sex couples can now take advantage of each other's exemption amounts when making gifts and transfers. For example, the partners can "split" gifts to third parties and double the annual tax-free exclusion amount for federal purposes. Similarly, married same sex couples can now elect portability. This is a legal tool that allows the spouse of one who is deceased to essentially borrow the "unused" exemption amount of the spouse who has passed away. In essence, it is another way that partners can jointly pass on assets to loved ones with as small a tax burden as possible.

As we have previously pointed out, other legal details, like the increased Social Security benefits and the filing of joint tax returns, are also open to same sex couples married in New York.

Critically, the article makes the unique point that as a result of the unconstitutional ruling, section 3 of DOMA is deemed to have been void from the outset. In other words, those adversely affected by the law in the recent past (usually three years), may be able to file amended tax returns and recoup some of their overpaid tax.

Following the Windsor decision, it is critical that all New York same sex couple visit with an estate planning attorney to update their current documents or have new plans created to account for the new legal options open to them.

Children-Out-of-Wedlock and Inheritance Feuding

May 9, 2013,

The more complex a family arrangement, the more tailored estate plan is likely needed. For local residents this often takes the form of second or third marriages, with children and different step-relatives. The "default" rules may not be good at accounting for these various relationships and balancing the unique needs of wishes of each family member. Yet, even in the most extreme cases, an estate planning attorney is able to craft the best possible arrangements, provided participants are open and honest about their situation.

But, things can get particularly sticky when there are secret relationships or other family dynamics that are not incorporated into a plan.

Mistress & Children Fight for Inheritance
This concern was vividly demonstrated in bizarre and tragic case that is making national headlines. A millionaire businessman, Ravi Kumra, was murdered in late November. A group of men apparently broke into his home, bound the man, and ransacked the home for valuables. Kumra eventually died from asphyxiation as a result of being gagged.

Kumra divorced his wife in 2010. However, his ex-wife still lived with him at the time of the attack--she too was bound and beaten, but survived.

In the aftermath of the murder, much has come out about Kumra unique lifestyle, eventually involving a feud over his inheritance.

Most notably, Kumra apparently was intimately involved with many different prostitutes who often stayed in the home (where the ex-wife still lived). In fact, the group of attackers (who were arrested) were allegedly connected to some of those prostitutes.

Initially Kumra wealth was going to be split between a group of family members, including his two adult daughters from his previous marriage. However, one of the former prostitutes eventually came forward and claimed that she was entitled to a family inheritance because she gave birth to two children (now 9 and 7 years old) who were fathered by Kumra. She sought the inheritance on their behalf as living descendents of the slain millionaire.

The matter was brought to court where, according to a Weekly Times story, a judge recently agreed that there was "clear and convincing evidence" that the children were indeed fathered by Kumra. As a result, the judge awarded the woman and her children $1,800 per child per month for the allowance. According to the mother, Kumra had the children with her intentionally and, since her pregnancy until his death, paid her several thousands dollars every month to be a stay-at-home mother.

This is obviously a unique situation. However, it is a testament to the complexity that can arise in any number of cases when various living arrangements are not handled as part of established estate planning efforts.

Fighting to Care for the Ailing Zsa Zsa Gabor

March 11, 2013,

It is often argued that estate planning is necessary to prevent family feuding in the aftermath of a passing. Disagreements about "who gets what," how to handle funeral issues, and other concerns are known to tear friends and family apart. Being explicit about one's wishes ahead of time--and letting relatives know early on--is the ideal way to avoid surprises and present the best opportunity for disputes to be squelched.

But proper planning does more than prevent feuding after a passing; it can also prevent it before one's death. That is because disagreements about caring for aging relatives is often a bone of contention. Arguments about who is going to make decisions on their behalf, what type of long-term care will be pursued, and similar concerns can cause ruined relationships just as much as any inheritance dispute. All of this makes it imperative for local community members to visit with an NY estate planning lawyer early on to ensure legal documentation is in place so that there is no uncertainty about how any of these issues are to be decided. Considering the prevalence of cognitive brain issues (i.e. Alzheimer's and dementia), prudent planning requires these matters be handled as soon as possible.

Celebrity Example
To get an idea of how these sorts of disputes play out, one need look no further than newspaper headlines discussing the situation around legendary actress and international celebrity Zsa Zsa Gabor. As reported by My Desert News, a court recently ruled in a case caregiving dispute that originally pitted the actress's husband against her daughter.

The 96-year old Gabor's health has apparently been in decline for some time, and she requires close support to manage her affairs. Last year her daughter allegedly learned that the actress's home was in foreclosure as a result of missed mortgage payments. This led her to question the care her mother was receiving from her husband. Eventually a out-of-court agreement was reached between the parties that resulted in the husband (Frederic von Anhalt) being appointed conservator of the estate.

In court papers released this week, it seems that the temporary conservatorship was extended by a court. This is notwithstanding the fact that von Anhalt a six figure loan against his wife's real estate holdings (valued at over $10 million).

The Gabor case is a reminder that it is critical to delineate who one wants to make decisions in the case of incapacity. Leaving the question open is often an invitation to dispute. That is especially true in blended families or where second or third marriages and adult children are involved.

James Brown Estate Battle Rages On -- Supreme Court Rejects Compromise

February 28, 2013,

The more assets that are at stake following a passing, the higher the risk that others might pursue all available means to get a piece of the pie--even if it completely contravenes the original wishes of the former owner. Estate planning fills the gap by closing as many opportunities for subsequent legal challenge as possible. Sadly, in many cases, even when some planning is done ahead of time, outsiders may attempt to find any loophole possible to upset the original plan.

That seems to be what happened with the estate of music legend James Brown. Brown died over four years ago from heart failure, but the final resolution of his assets remains in limbo with a potentially long future ahead. That is because the Huffington Post is now reporting that the state's supreme court recently rejected a compromise that was two years earlier between various parties.

The Backstory

Not long before his death Brown created a will that seemed to give the vast majority of his wealth to charity, mostly focusing of the educational goals of needy children. However, after his passing, his purported widow (the couple was not married) and various heirs challenged the will. The feuding escalated quickly, even reaching the point of forcing the singer's body to remain unburied for two months while disagreements were sorted out.

Over the next two years accusations about trustee mismanagement, altered wishes, and undue influence were hashed out in court. Eventually, in a somewhat unprecedented step, the state's Attorney General stepped in and brokered a deal. Per the terms of the deal, 50% of the estate would go to charity, 25% to the purported widow, and the remaining 25% to other heirs.

Not So Fast

That old agreement was reached in 2009. But shortly after a fewer of the former trustees--they had been replaced by a lower court earlier--filed suit challenging the agreement. That legal challenge eventually made its way up to the highest court in the state. In a new ruling that high court threw out the AG-brokered compromise. The main problem, noted the opinion, was that the compromise seemed to give short-shrift to Brown's actual wishes which were to give virtually everything to charity. The judges noted that it should not be that easy to slash charitable bequests via legal challenge. So now the matter will be sent back to a lower court to figure out the next steps.

One of many lessons to be gleaned from this sad case: a simple will is often not enough to prevent others from attacking your wishes, causing legal controversy, and delaying a final resolution for years.

Richard III Reminder: Set Your Funeral and Burial Plans in Stone

February 11, 2013,

One common excuse for putting off basic estate planning is the assumption that others--spouse, children, siblings, close friends--already know exactly what you want, and so there is little need to go through the legal hoops to solidify it. Sadly, in the aftermath of a passing, there is no way to know exactly what those in control of a situation might do unless there is legal backing to it. That obviously applies with distribution of property, but it also applies to more ceremonial aspects to a passing, like funeral and burial wishes.

Don't Leave it to Chance
For many, their faith dictates how they chose to have their passing honored (or not honored). From deciding what to do with remains or where to be buried, it is critical that desires be set forth clearly. It is a mistake to underestimate the significance of these details or the in-fighting that may bubble up where there is disagreement about how to handle these matters.

To illustrate the significance of burial decisions, one need look no further than the morning newspapers where disagreement is brewing over what to do with the remains of former English King, Richard III. In a scene that seemed pulled from pop fiction, the remains of RIchard III--immortalized as villain by Shakespeare--were recently found buried beneath a parking lot.

The unceremonious burial took place over 500 years ago and no one alive today has any personal connection to the former king. However, that has not stopped a feud from brewing over where the monarch's final resting place should actually be, as recently highlighted in a Times story. Initially, the town where the bones were found--Leicester--took steps to bury the king in the city's cathedral.

However, the nearby city of York is objecting. Representatives for the town argue that York was Richard's home town (he was once known as Richard of York), and that his connection to the city is far more important than where his bones were found. Historians note that he was buried in Liecester only because he died in a battle nearby.

Others are arguing that, wherever he be laid to rest, it should be in a cathedral used by Catholics. Catholicism was the national faith during Richard's time. However, not long after his passing Henry VIII broke ranks and created the Church of England. Many cathedrals formerly used by Catholics were converted to the Anglican faith.Consequently, some observers are arguing that it would be inappropriate to interr the former king in a cathedral used by a faith that was, presumably, not his own.

It remains unclear how the matter will ultimately be resolved. Both the town of Liecester and York have asked the royal family for support, and each are circulated petitions to influence the decision. Even then, it is unclear exactly where the bones will lie, even after the city is chosen.

Obviously, the remains of a former king of England half who died half a millenia ago presents a somewhat unique case. But the same emotions that are tied up in this battle for burial rights applies to similar decisions today. It is critical to contact a NY estate planning attorney to ensure your wishes are not up for dispute.

Famous Feuds and New York Estate Planning Lessons for Every Family

January 30, 2012,

A Reuters story late last week suggested that while estate planning feuds of the famous usually involve millions, the principle issues are the same as those faced by all local residents. Every case must be evaluated individually, but the same main issues are found again and again. That is why our New York estate planning lawyers urge residents to visit with experienced professionals when making preparations because they have likely seen similar issues in the past and can help anticipate problems that might come up down the road. As this latest story explained "anyone thinking about wealth transfer faces the same issues: dysfunctional families, potentially unequal positions in the family business, perhaps multiple marriages with kids from each." This applies whether one has $50,000 or $50 million.

For example, second marriages often create planning problems. When crafting an estate plan, one must balance the needs of the second spouse with the children of the first marriage. If one doesn't do it, as the author notes, "you're basically buying a litigation case." For example, the longest estate litigation case of the last century was that of Anna Nicole Smith. She was a second wife of a billionaire investor. The children from the man's first marriage engaged in a prolonged battle to ensure that Ms. Smith did not receive any substantial portion of the man's wealth. The case was still not resolved with Ms. Smith herself passed away.

Family businesses also present common issues for those in all income brackets. Much family wealth is wrapped up in a business. Often some of the children participate in the business while others do not. This often creates significant estate planning issues regarding who gets what share of the business. One of the most well-known examples of this is that of the Koch family in New York. The patriarch had created a fortune after developing a new cracking method in oil refinement. However, upon his death the man's four sons engaged in a prolonged legal dispute over control of the business. As the article notes, "there are a lot of ticking time bombs in family businesses that creates litigation."

Many judges involved in these sorts of cases have explained that they believe estate litigation is on the rise. The fact patterns of the cases are consistent: second marriage issues, family business struggles, and similar situations. Those involved also report that the size of the estate is often of no consequence. Estate disputes are not only the concern of millionaires.

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Estate Planning Mistakes (and Lessons) of the Rich and Famous

January 4, 2012,

Most local residents will nod in agreement when one explains the importance of conducting New York estate planning as soon as possible. It is easy for most to understand the value of planning an inheritance, saving on taxes, and preparing for alternative decision makers. Yet, all estate planning lawyers know that there is a difference between recognizing the importance of a task and actually taking the time to get it done. Psychologists have found that when it comes to making the leap from knowing that a task should be completed to actually doing it, personal examples are usually the most effective motivators. It is one thing to learn about the value of planning, it is another to hear about a specific case of proper planning that helped an actual person. In fact, experts have also found that even more effective than stories of positive benefits are stories of plans gone awry. The stick is often more persuasive than the carrot.

That is where the estate planning misadventures of the rich and famous can be useful. Unfortunately, recent history is replete with stories of many well-known figures who did not take care of their affairs properly (or at all) before their passing. This week the SM Mirror ran down a quick list of some of the more well-known cases of celebrity estate planning blunders. A few included examples:

Jimi Hendrix
The great young guitarist passed away tragically at the age of twenty seven. As is common for those around that age, Mr. Hendrix did not have a will. Possession of his estate was disputed for decades, with Mr. Hendrix's father officially taking ownership twenty years after the death. Upon the father's passing, everything went to the father's daughter from a second marriage. The father had adopted the daughter who was his second wife's child from her former marriage. That means that Mr. Hendrix's nearly $80 million fortune (which continues to grow) is owned by someone he never knew. This is the case even though there remain many family members who are still alive and were much closer companions to Mr. Hendrix during his life.

Marlon Brando
Marlon Brando supposedly explained to his long-time housekeeper that she would be able to keep the home in which they lived following his death. She had been living there for years beforehand. However, the promise was never committed to writing. Oral promises are easily contested and often invalid. Upon Mr. Brando's death the housekeeper lost her bid for the home and received only a small settlement.

Anna Nicole Smith
The model and TV reality star died without updating a will she had written six years earlier. The old will left everything to her son Daniel. However, Daniel had died several months before Ms. Smith. Therefore, the probate court will likely have to apply default rules to determine how her assets are distributed. However, the case remained unresolved five years after her death, because Ms. Smith herself was involved in a fifteen year battle for a share in the assets of her billionaire former husband after his own will was contested.

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Holidays Are Prime Time to Discuss Family Estate Planning

December 15, 2011,

Estate planning is about setting ones affairs in order for the benefit of friends and family. In that way, the holiday season is a natural time to discuss these matters, because it is now when many families are getting together and celebrating. Particularly for families that do not live close together, this time of the year may be the only one when everyone is all in one place. For those in our area, it may be an ideal time for adult children to sit with parents and siblings to talk about creating or updating their New York estate plan.

Of course, one need not spend time delving into the specific details of a plan over turkey dinner, but simply mentioning the topic lightly can be important. As a recent article in The Gazette suggested, if parents do not seem willing to get into the details during the holiday, adult children should simply explain that they'd like to discuss the subject at a later time. However, if parents seem receptive, it is helpful to ask them some basic questions. For example, some parents may already have wills drafted. If so, it is important for other family members to know where it is located and how to access it. If a will is used, children should ask who has been named executor. The same is true when more advanced tools like trusts are used, where successor trustees have to be named. Our New York estate planning attorneys know these seemingly simple choices come loaded with problems. Discussing them ahead of time, when everyone is together, is often a good approach. For example, choosing one child over another for either of these duties may create hard feelings.

Beyond subtle prompting to get certain estate planning affairs clear, the holidays may also be a good time for parents to share exactly how certain sentimental objects will be distributed. Of course, the holiday gathering may be inappropriate if it is known that certain decisions will cause family discord. However, it is never a good idea for family members to learn who is set to receive certain objects only after a loved one has passed, particularly items with emotional attachments. Because everyone is together the holidays may be the ideal time for grandparents to clearly explain what steps they've taken and to answer any questions that family members may have. The input that the elders receive from family members may also prove helpful in case something has been left out of planning. At times adult children can remind parents of certain assets or family issues that should be incorporated in estate planning documents that had originally been left out.

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Reality Star Feuds with In-Laws in Estate Fight

November 3, 2011,

Last month Forbes discussed an estate feud that brewed followed the suicide death of a reality show star. Late this summer, the 47-year old star of "Real Housewives of Beverly Hills," Russell Armstrong, took his own life. His wife, Taylor Armstrong, had filed for divorce shortly before the death. However, the divorce was not final at the time of Mr. Armstrong's passing, meaning that per the rules of the state she was the next of kin. As such she maintained a certain level of control over his affairs--including his funeral and burial plans. Without instructions to the contrary in estate planning documents, even estranged spouses may maintain this control.

Making matters worse in this situation, it appears that Mrs. Armstrong never maintained a good relationship with her former husband's family. As a result, she did not initially tell the family about the funeral, burial, or memorial plans. The man's parents and siblings wanted his remains buried in his home state of Texas, but Mrs. Armstrong claimed that she wanted to bury him in Los Angeles. It remains unclear exactly how the ugly situation will be resolved.

Unfortunately, the burial dispute may be just the beginning. Depending on Mr. Armstrong's estate planning documents, his estranged wife may still be entitled to inherit most of his assets. That is why it is important to seek out professional help in the middle of a divorce. Otherwise, there is no telling what might happen. As the article notes, "Fights over the estate of someone who passed away in the midst of a divorce are especially common." Other recent high-profile examples include the deaths' of Dennis Hopper and Gary Coleman.

Our New York estate planning attorneys know that these complex situations occur in our area with surprising frequency. A loved one's passing is always an incredibly emotional time, and matters are made significantly worse if a spouse (estranged or otherwise) does not maintain a good relationship with the deceased's family. Traditionally, this situation is more likely to exist in second marriages. That is why there is immense benefit to ensuring that professionals are consulted ahead of time to account for potential disagreement down the road. In many cases, a neutral third party can be involved to ensure that fairness reigns no matter what the future holds. When clients in our area visit our New York estate plan lawyers to discuss second marriage planning, for example, we often recommend that the attorney be named a co-trustee of trusts to provide the necessary outside perspective.

See Our Related Blog Posts:

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Celeste Holm's Family Feud Highlights Importance of New York Inheritance Planning

July 6, 2011,

This weekend the New York Times reported on the sad legal battles of 94-year-old actress and Broadway star, Celeste Holm. Ms. Holm gained famed as a leading film actress in the 1940s, starring in All About Eve and winning an Oscar for her performance in Gentleman's Agreement. Now, however, Ms. Holm is making headlines for her 5-year legal battle with her sons over her estate. The story notes the potential for drama surrounded a New York inheritance and, as the author writes, is "a cautionary tale for families trying to manage one of our age's emblematic conflicts, between elderly parents who want to live autonomously and adult children who want to protect them."

The trouble for the family began when Ms. Holm (then 87 years old) began dating a man who was 46 years younger. When the man moved into Ms. Holm's large Central Park West apartment her two sons became worried that the relationship would have ramifications on their inheritance. Shortly after, Ms. Holm's son transferred her investments and apartment into limited partnerships and then arranged for the partnerships to be held in an irrevocable trust, naming himself as the trustee. The trust was scheduled to pay Ms. Holm $300,000 a year to cover her expenses.

These living trusts are popular legal entities than help families transfer assets at death while avoiding the time and expense of probate proceedings. However, it is imperative that the decisions are made in good-faith with the consent of those involved. That is where Ms. Holm's family situation went awry. Following a family meltdown over the relationship with the younger man, Ms. Holm sued her son to overturn the irrevocable trust. The legal battle eventually lasted five years and consumed millions of dollars--taken from the very estate that was at issue. The two parties eventually settled, but the expenses of the fight had placed Ms. Holm in a tough financial situation. Ms. Holm and her now-husband remain in debt and they are unsure if they will be forced to move out of their apartment.

Continue reading "Celeste Holm's Family Feud Highlights Importance of New York Inheritance Planning " »

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.

The IRA Contract

November 3, 2010,

Pioneered by Ettinger Law Firm, the IRA Contract solves a technical problem that arises when a spouse in a second marriage wishes to leave their IRA, or other qualified plan, to the husband or wife but also wants the unused funds to go to their children from a previous marriage after the spouse dies.

Many lawyers recommend a trust for this purpose. For example, husband dies and leaves the IRA to a trust which names the wife as beneficiary for her lifetime and, after her death, to his children from the previous marriage. Although leaving an IRA to a trust is perfectly legitimate and solves the problem, it has one major drawback. Since a trust has no "life expectancy" on which the IRS can calculate the required minimum distribution (RMD), when you leave an IRA to a trust, the Service looks through the trust to find the oldest trust beneficiary. They then calculate the RMD based on the life expectancy of that person, usually the second wife. The first issue is that even if the wife is under 70 1/2, the age at which you are required to start withdrawals, she cannot wait until then. Since the IRA was left to a trust, it is not a spousal rollover and does not become the wife's IRA. As such, she cannot defer taxes until 70 1/2 but must start withdrawing the year following her husband's death. The larger problem is that the IRS will establish a "term certain" for the payout based on her life expectancy which may be two decades or more less than the husband's children. In other words, when she dies, his children must continue to withdraw based on her life expectancy, instead of based on their own life expectancies. Two decades or more of deferred taxes on the IRA are lost.

To solve this problem, we prepare a fairly simple contract. Wife agrees, in consideration of husband's naming her as beneficiary on his IRA, to name husband's children irrevocably as her beneficiary when the IRA rolls over to her. She also agrees not to take any more than the RMD, except on consent of the attorneys appointed by the husband. This prevents someone perhaps unduly influencing the wife in her later years to simply withdraw all the funds and give them to her children or others.

The net effect of The IRA Contract is this. Husband's IRA now rolls over to his wife. She may continue to defer taxes on it until she reaches 70 1/2. She names his children as beneficiary on her IRA so that upon her death they may each take a distribution based on their individual life expectancies. The IRA's get two or more decades of additional tax deferral. The value of all of those extra years of tax deferral may easily be worth double what it would be without the benefit of The IRA Contract.

Second Marriage Planning - The Lawyer as Co-Trustee

June 7, 2010,

By Michael Ettinger, Esq.lawyer-as-trustee.gif

One of the situations that call for the lawyer to recommend himself as trustee is in second marriage planning.

It is a firmly established legal principal that there is no ethical prohibition against the attorney recommending himself to act as a trustee on behalf of a client or client's estate. And for good reason. In many situations the counselor can provide invaluable assistance that no one else is able or willing to provide.

In second marriage planning, we often recommend that the lawyer act as co-trustee on the death of the first spouse. While both are living and competent they naturally run their trust or trusts together. But when one spouse dies, what prevents the other spouse from taking all of the assets and diverting them to their own children? Nothing at all, if they alone are in charge. While most people are honorable, and many are certain their spouse would never do such a thing, strange things often happen later in life. A spouse may become forgetful, delusional or senile or may be influenced, sometimes unduly, by other parties. Not only that, but what are the children of the deceased spouse going to feel when they find out their stepmother is in charge of all of the couple's assets? They are going to imagine the worst case scenario and feel very insecure and possibly even hostile to the surviving spouse. As my esteemed professor of The Law of Trusts said to us over thirty years ago "you would be surprised by how fast the family glue becomes undone."

Now, if you choose one of the deceased spouse's children to act as co-trustee with the surviving spouse what have you done? Created a potential minefield. The biggest issue is the conflict that exists whereby the stepson may be reluctant to spend assets for the surviving spouse, because whatever is spent on her will come out of his ultimate share. Then what if she gets remarried? How will he react to that event? What if it turns out he liked her when his dad was with her, but not so much or not at all afterwards? These things happen, and often.

Here's where the lawyer as trustee may provide an ideal solution. When husband dies, the lawyer steps in as co-trustee with the wife. He helps her invest for her benefit as well as making sure the principal grows to offset inflation, for the benefit of the heirs.

Wife in this case takes care of all her business privately with her lawyer. The trusts cannot be raided. These protections may also be extended for IRA and 401(k) money passing to the spouse through the use of the "IRA Contract" pioneered by Ettinger Law Firm. Surviving spouse agrees ahead of time that she will make an irrevocable designation of both of the couple's children as beneficiaries when the IRA is left to her and further agrees that any withdrawals in excess of the required minimum distribution (RMD) may only be made on the consent of the lawyer.

What about the deceased spouse's children? When the trust terms are read they now feel very secure that the lawyer their father chose will continue on for the stepmother's lifetime, looking after and protecting their share of the assets. They are relieved by the protection that has been set up for them, have no animosity or concern about the stepmother's sole control of the assets and the relationship between the families continues smoothly and may even continue to grow and flourish. All because the lawyer took the time to explain the advantages to the client and was willing to shoulder the responsibility that acting as trustee entails.

A word about trustee's fees. Trustee fees in New York are 1.05% of the first $400,000, .45% of the next $200,000 and .3% of any amounts over $600,000. So, for example, on a one million dollar trust, the trustee's commission would be $6,300.00 per year. These fees take effect only on the death of the first spouse, when the lawyer as trustee is called upon to act.

As you can see, having the lawyer step in for the deceased spouse can help both of the spouse's families avoid a world of trouble after the first spouse dies.


Estate Planning for Second Marriages - Thoughtfulness Required

February 22, 2010,

by Michael Ettinger, Esq.
extended-family.gif

With people living much longer than in the past, the frequency of remarriage is increasing, even in later years. This latter phenomenon is raising a host of elder law estate planning issues. On the other hand, we are also seeing with increasing frequency the blended family with "his, hers and theirs" children, creating another set of potential pitfalls.

Most of these estate planning issues can be resolved with thoughtfulness on the part of the clients and the compassionate guidance of their estate planning attorney.

Here are some of the key issues and potential solutions for planning for second marriages.

1. The duration of the second (or third) marriage and also the relative financial positions of the parties. Recently a client came to see us whose husband has early Alzheimer's. His IRA named his children as beneficiaries many years ago. The couple have now been married for thirty-five years and the wife would be left destitute without her husband's IRA. Hopefully, husband has the capacity to understand the situation and make a change. One option: husband may leave his IRA to his wife on the condition that she name his children as the beneficiary on her death.

2. In our experience, a great deal of thought should be given to what the children of the first marriage will receive should their parent be the first of the couple to die. By looking at the matter from the heirs' point of view, we can often provide an outright bequest of a portion of the estate, or name them as beneficiaries on an insurance policy, so that they feel loved and cared for by their parent and not relegated to an inferior position. This is especially important if the parent has married a much younger spouse. Needless to say, this will also greatly affect their future relationship with the surviving step-parent. Thoughtlessness is this area alone has led to a lifetime of hurt and anguish for many a child of a remarried parent. Wills, at the very least, should provide recognition to the children of the prior marriage.

3. The use of living trusts is often an essential tool where the surviving spouse needs the majority of the combined assets to survive on. Here, the issue becomes how to guarantee that the predeceased spouse's children will receive their fair share on the surviving spouse's death. Typically, we set up one trust if the estate is not subject to estate taxes, or two trusts if needed to reduce or eliminate estate taxes, and make both spouses co-trustees of the trusts. The trusts provide for equal distribution among his and her families after the second death. What prevents the surviving spouse from raiding the trust and giving everything to his or her own children? Generally, we recommend a professional co-trustee to serve with the surviving spouse, so as to prevent this occurrence.

4. The estate planner must consider any prenuptial agreement as well as any obligations to children arising out of a divorce decree. These may need to be changed after a number of years to reflect the current situation which may have been greatly altered. For example, after many years one spouse will often wish to provide life rights in the marital home to the other, should he or she be the survivor, something expressly forbidden in the prenuptial agreement drawn up many years earlier.

5. Long-term care obligations have proven to be intimidating to many couples later in life. Even a prenuptial agreement providing that the spouses' assets are separate and that they have no financial obligations to each other is not binding vis-a-vis Medicaid. Medicaid considers the combined assets of the married couple as being available for the care of the ill spouse, regardless of whose name they are in. Hence, the need, amount and availability of long-term care insurance is often a factor to be considered in second marriages. Medicaid planning as well as setting up a Medicaid Asset Protection Trust for one or both spouses must also be considered in this context.

6. For wealthier couples, one spouse may wish to take care of his or her less well off spouse for their lifetime but then have the unused funds revert to their biological family. Here a QTIP (Qualified Terminable Interest in Property) trust may be set up for the surviving spouse, which will (a) provide a lifetime income, (b) delay, reduce or often eliminate estate taxes, and (c) protect the inheritance for the children of the predeceased spouse.

As you can see, with a little thoughtfulness on your part and the help of an experienced elder law estate planning attorney, often gleaned from hundreds of cases, second marriage couples have the ability to "do the right thing" for all concerned and avoid acrimony or even litigation in estate administration and probate.