Protect Heirs from 2nd (and later) Spouses

Anna Nicole Smith, widow of 89-year-old Billionaire J. Howard Marshall,
continues her battle for a piece of his estate. The Supreme Court recently
ruled in favor of Anna Nicole, and she will likely have a new hearing in front
of a lower court to address the substantive issues of her case. Although
everyone is focused on the glitz and dollars (all $1.6B) there are valuable
lessons in this case.

There are specific steps even average families can learn from this case to
protect themselves and their heirs. While Anna Nicole may be the most talked
about case, these issues affect women and non-married partners as well, and so
caution is the recommendation for all:

• Sign a pre-nuptial agreement and do it right: each party should have
  his or her own attorney. When discussing the terms of the pre-nuptial
  agreement, there should be complete financial disclosure between the
  parties. If an engaged couple is hesitant to share all information, this
  may be a sign of problems to come. All financial information should be
  discussed and dealt with well in advance of the wedding.
• Sign a will clearly stating what is intended for the new spouse. Wait
  six months. Re-visit the will, making changes to other provisions, but
  leaving the bequest to the new spouse intact. Sign the new will. Save the
  old wills to demonstrate a consistent pattern of distributions to the new
  spouse.
• Have a trust set up for your new spouse. This can give him/her the
  right to distributions from the money, but assure the remainder reverts to
  your family. Consider using a uni-trust payment arrangement (e.g., 5% of
  principal paid to your new spouse each year). This approach can protect
  your new spouse and children who receive the trust assets on his/her later
  demise, while enabling your trustees to invest using an asset allocation
  model that benefits all parties.
• If there is a change from the pre-nuptial agreement, e.g. favoring the
  new spouse, have your matrimonial counsel amend the prenuptial agreement,
  using all appropriate formalities. Revise your will and other estate
  planning documents to confirm these wishes. It’s important that all
  documents are consistent to minimize future problems and to ensure that
  your intentions are fulfilled.
• Have your new spouse waive any rights under state law to claim a
  specified portion of your estate (called spousal waiver of right of
  election).
• Don’t video tape your will signing. Contrary to popular belief, video
  tapes can often be used by a forensic expert to undermine your
  position!
• Sometimes, there are easier steps to keep everyone happy. If health and
  age permit, insurance can be used as the great equalizer. Example: Set up a
  life insurance trust to own enough life insurance to provide for
  your new spouse, and then leave your estate to your children. That way, you
  know that after you die, everyone is taken care of.
• Don’t forget, it’s not only about a will. What if you designate
  your new spouse in a form durable power of attorney as your agent? Some
  form powers of attorney permit gifts without limit, and the right of the
  agent to change beneficiary designations. If you become incapacitated, might
  your new spouse make gifts to himself /herself and name himself/herself as
  sole beneficiary on your retirement assets. Powers of attorney can be very
  powerful documents.
• Watch the title to assets. If you change assets to joint with your new
  spouse, your will won’t affect those assets.
• The tax allocation clause in your will could be critical to the
  ultimate disposition of your estate. Example: You bequeath half of your
  estate to your new partner and the remaining half to your children, but
  they pay the state and federal estate tax on their receipt. The taxes might
  shift the net effective allocation to 2/3rds your partner, and
  1/3^rd your children.
• If you are already married and do not have a pre-nuptial agreement, or
  if time just ran out before you got married and you couldn’t get the
  document signed, don’t worry, it is not too late! Once you are married,
  you can sign a post-nuptial agreement to the same effect as a pre-nuptial
  agreement. Alternatively, you can begin more comprehensive estate planning
  with an attorney or financial advisor.