Taxation & Estate Planning

One of The Top 3 Estate Planning Mistakes

By michael

One of the top 3 estate planning mistakes – in both frequency and severity –  is families not planning after second marriages.

These mistakes are so bad because there usually has not been any undue-influencing or other wanton shenanigans that would allow the plan to be set aside, its just that mom/dad or their attorney didn’t think things through when drafting their plan.  There are just so many options to consider and no one plan will fit all scenarios.

Professor Berry here links to an article on just subject and, in my opinion, its a must read for anyone who is either in a second (or third or fourth, etc…) marriage, or for anyone who is the child of a parent in a second marriage.

The below text is taken from the Professor’s post but I have reformatted it and added some additional content:

• The first situation to consider is how money will be divided if both spouses die at the same time. This is actually the easier of all the scenarios.
  • One option is for each parent to pass property to his or her biological children.  This seems the most equitable on the surface, however, accomplishing such a distribution is a very difficult thing to do because very detailed attention must be paid to what assets are owned by mom and dad and, more importantly,  how they’re titled.  This option likely precludes joint ownership in any of their asset.  So while it sounds nice to pass each parent’s property down to their biological children, it would be quite a feat to accomplish this cleanly.
  • Another option is for all the assets to be divided among all of the children equally.  However, this could cause one heck of a rift where one of the parents has substantially more assets than the other.
  • Yet another is to divide assets based upon merit or need, but this can quickly become an emotional mess.
• The more common?and complicated?situation occurs when one spouse dies first, usually dad.
  • If everything is left to the surviving spouse, she may spend those assets before spending her own (hey, its all hers so she is certainly allowed to), leaving nothing for dad’s surviving children. And at dad’s death, if his will leaves everything to mom or if his property is just passed to her via joint ownership or beneficiary designation, there is likely nothing that dad’s kids can do to change this result.
  • If at dad’s first death all of his assets are then left to his kids so that nothing goes to mom (or vice-versa, she  may not be able to maintain her standard of living during retirement.  (Again, this may sounds ok to dad’s kids but its usually anathema to dad’s wishes.)
  • Another possibility is for the surviving spouse to inherit half of the decedent?s property with the rest going to decedent’s biological children, but this non-need based decision model does not necessarily avoid any of the above problems, in fact, it could make them worse.

The best solution for planning for second marriages is to place assets in a trust.  And, because you can’t know who will die first, both mom and die typically need their own trust – avoid the dreaded joint trust! A properly drafted trust can allow the surviving spouse?s access to the deceased spouse’s assets during her lifetime, with reasonable restrictions, and on her death what remains will pass to dad’s surviving children.

?There is no one-size-fits-all solution to estate planning for couples in second marriages. Each situation is different and requires a different solution.?

What I do know, with certainty, is this is the situation which leads to more litigation than almost any other.  This is also the situation that is most likely to end the combined family by leaving everyone angry at everyone else.  But it doesn’t have to be this way.  Contact a qualified estate planning attorney in your area anytime you have a family with a second marriage.  Estate planning for “regular” families is tough enough; the second marriage – an arrangement that has almost become the norm – is doubly so.

Full post as published by The Ohio Trust & Estate Blog on March 01, 2011 (boomark / email).