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Universal Occurrence. Who among us does not have clients in second marriages and especially late-in-life
second (or third) marriages. One wag has commented that a second marriage is the triumph of hope over
experience. Whether or not that observation is true, we all encounter many late in life marriages where there
are her adult children and his adult children.
Unique Problems. From an estate planner’s standpoint, there are a lot of unique problems that need to be
addressed with clients. Most of these problems require taking off the rose-colored glasses and recognizing
some of the stark realities of the situation. There are basic conflicts between a couple’s desire to provide for
each other in the event of death or incapacity, and their desire to protect and provide for their own blood
descendants. In discussing this matter with clients, I find that many times the various problems have not
been thought through. Let’s examine some of these.
Spousal Contracts. Michigan recognizes both Prenuptial Agreements and Postnuptial Agreements between
spouses, providing that certain formalities are followed. These formalities and requirements are not subject
to this newsletter. However, one of my first questions to couples is whether there is an existing Prenuptial or
Postnuptial Agreement. If the answer is no, then the estate planning documents may become a postnuptial
agreement, or we may recommend a separate Postnuptial Agreement to cover some or all of the issues
presented. Incidentally, I always recommend that couples have a Prenuptial Agreement, sometimes they
follow this advice, sometimes they don’t.
How Are Funds Divided? One of the things couples need to decide is how funds and other property will be
divided among their respective offspring. At the child level - will all children be treated equally (per capita), or
will the husband’s funds be allocated to his offspring and wife’s funds be allocated to her offspring? Will
there be any direct inheritance at the first death, children or grandchildren, or will everything be distributed at
the second death? Are there special properties such as lakefront property that will be shared, and if so, for
how long?
Human Frailty. Usually, relations between step-parents and step-children are pretty good while both spouses
are alive and well. This aura of good feeling usually disappears at death or incapacity (such as a nursing
home). Most couples are optimistic about good relationships continuing after death of the natural parent, but I
and my peers can attest that this usually does not happen. Only occasionally does the step-parent maintain
good relations with step-children after the death of natural parent-spouse. In fact, sometimes these
relationships turn downright ugly, and not always on account of money. I advise clients that this likely to
happen and take this into account in their planning.
Guarantees. I try to impress on married couples in a second marriage that assuring an inheritance for the
natural born offspring at the death of their parent (without waiting for the death of the step-parent) is definitely
a good idea. Generally, more affluent clients will follow this path, at least to some extent.
What do we do when the couple’s combined assets are modest and the couple wants to make sure that
these assets are all preserved for the support of the surviving spouse? Even in these cases I recommend
that there be some bequest to the natural born children at their parent’s death, and that such things as
inherited antiques, silverware, jewelry, etc. be delivered down the family line, at a parent’s death.
The question of guarantees for the inheritance at the second parent’s death can be intricate and difficult. In
the case of separate trusts for husband and wife, each trust can be crafted separately and the assets of the
first decedent can be dealt with in the trust language, assuming that the property is going to maintained for
the support of the survivor.
The next questions is - who will be trustee? A step-parent does not want to have to rely on a step-child as
trustee, and by the same token, a step-child is not very comfortable knowing that his or her inheritance is in
the hands of a step-parent. Step-parents acting as trustees can easily abuse their position, change life style
and spending habits, divert funds to their own natural offspring and in general conduct their lives in a manner
inconsistent with the wishes of the deceased parent (at least that is often the view of the deceased parent’s
natural children). A couple of comments are important here. First, independent trustees really earn their fees
in situations like this. The second comment is that the trust language should be carefully crafted and not
boiler-plate so as to the make the decedent’s intentions clear concerning management of the trust property
and priority of the interests of the surviving spouse and the decedent’s offspring.
The Wildcard. Nursing home expenses can be the wildcard in estate planning for couples in a second or later
marriage. Is there long term care insurance? What if one party has insurance and the other is not insurable?
Are the assets of the healthy spouse to be used for the care of the nursing home spouse? Is this contingency
covered in a Prenuptial Agreement?
As more and more older Americans become concerned about the high cost of nursing home care, they are
beginning to focus on these issues early on. If they don’t, then the family is left to cope with the problem,
usually to the discomfort, anger and frustration of at least some members of the family.
At the present time, Michigan’s Medicaid rules are somewhat less accommodating than the rules in some
other states. Moreover, these rules are very likely to change in the next few years, and our crystal ball is
somewhat cloudy in this respect. Even though we cannot say precisely what the rules and regulations may be
five or ten years from now, at least the problems should be addressed, discussed and some resolution
achieved.
Conclusion. When one asks these difficult questions, the asking may not produce immediate solutions, but
should prompt discussion and examination of the individual circumstances, agreements, feelings, etc.
Usually, answers are not reached immediately and a professional advisor can prompt their clients to do a
realistic assessment of their estate plan, taking into account the factors discussed in this newsletter.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| May 2003 SECOND MARRIAGES - UNIQUE PROBLEMS by James R. Modrall III, J.D., C.P.A. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |