New York Estate Planning Lawyer Blog

By Michael Ettinger, Esq.

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.

by Michael Ettinger, Esq.

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.