|
|
 |
|
| 2nd Families |
Tailoring Our Legacies
Harvey D. Shapiro
11/01/2004
|
Jeff and Judy Tyler, who live in the verdant Berkshire Mountains of western
Massachusetts, spent 20 years in troubled first marriages and another decade
being single before they found each other. Now, as husband and wife, they have
established a happy balance in their relationship. Jeff says he does not really
mind the paintings by Judy’s uncle that she has wedged in with the “real art” on
the library walls. She cheerfully indulges him in his hallowed collection of
road signs. Judy confides that she does not “think too much of Jeff’s sons,”
both lawyers, but, she adds, “We don’t see them very often.” The issue that
continues to gall them, however, is how to dispose of their money and
possessions after they die.
 The Tylers, who have asked Worth not to use their
real names, face a classic second marriage estate planning dilemma: We love our
new spouses dearly, and we want to provide well for them as long as they live.
However, we want the rest of our assets to go to our children, not to our
spouse’s offspring, whom we may barely know. Moreover, we want our heirlooms and
valuables to stay in our family, where their meaning will be understood and
revered, rather than wind up in the hands of our spouse’s heirs, who may care
little for them.
We can find safe paths through these emotionally loaded
estate planning thickets, but “there are lots of twists and turns, legal issues
and tax issues and family issues,” says Carlyn McCaffrey, a partner and cochair
of the trusts and estates department at law firm Weil, Gotshal & Manges in
New York. Not surprisingly, the first step is to decide what economic
arrangements we want. Then we can hammer out the legal structures we need,
McCaffrey notes, and ensure our estate plans are immune from legal challenges
from our second husband or wife, or from our children or stepchildren.
TOP VIEW
Entering into a second marriage adds several layers of complexity to
our estate planning strategy. But experts suggest that making informed decisions about inheritance issues can mitigate potential problems. By crafting comprehensive prenuptial agreements, funding well-designed trusts and selecting
savvy, compassionate trustees, we can lay a solid fiduciary foundation for our new family’s legacy. |
Proactive Prenuptials
Fortunately, a simple prenuptial agreement can form
the foundation of an effective second-family estate plan. While many people
commonly associate a prenup with the risk of divorce and a will with estate
planning, a carefully crafted prenuptial agreement can actually prove a powerful
tool for managing the disposition of our assets. Each spouse can spell out
specific bequests, while agreeing to forego certain rights of inheritance. The
prenup also enables each spouse to bequeath enough funds to support the
survivor, while stipulating that wealth be distributed to our chosen
inheritors—our own family, school and charities.
If we eschew a prenup, we
expose much of our estate to the whims of our second spouse. “If you don’t have
a prenup,” McCaffrey says, “it doesn’t matter what your will says: Your
surviving spouse has certain rights.” In New York, for example, a surviving
spouse is entitled to one-third of our assets, and this is the standard in many
states, McCaffrey explains. In states with community property laws, a surviving
spouse receives half of all assets, plus the right to stay in the family
home.
In addition to our liquid assets, a prenuptial should also specify our
preferences for the transfer of valued possessions, such as jewelry, heirlooms,
art and real estate. “One of the classic problems is tangible personal
property,” says James R. Wade, a partner with Wade Ash Woods Hill & Farley
in Denver. We may unthinkingly allocate all of this to the surviving spouse. But
if our family treasures slip beyond our blood relatives’ control, they might
someday see their legacy turn up at auction, or be forced to endure a group of
strangers living on a swathe of what was once their vacation property.
 The
prenup should also describe how we want our shares in our family businesses
distributed. If not, individuals whom our business partners barely know, and who
may be unfit managers, such as our second wife or stepchildren, may end up with
the equity.
Trusted Tools
A properly constructed trust, when combined with
a prenup, remains the best method for controlling how a second family’s wealth
is distributed after one spouse dies. A trust will provide income to our
surviving spouse for his or her lifetime and, upon death, disburse the remaining
funds according to the wishes we expressed in the prenuptial agreement.
Practically any type of trust can facilitate this, but many remarried couples
turn to a qualified terminal interest property (QTIP) trust to execute their
estate plans. The QTIP trust’s primary advantage is the tax-deferred income it
provides. Upon our death, our wealth passes to our spouse tax-free; no estate
taxes are due until after the surviving spouse dies.
|
|
|
|
|
|
|
