- Consumer
Protect Heirs from 2nd (and later) Spouses
Anna Nicole Smith,
former wife 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 from every heir (or second or
later spouse) 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:
o Sign a pre-nuptial
agreement and do it right: both spouses, each with separate attorneys, complete financial disclosure, and well in advance of the
wedding.
o 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.
o 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.
o 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. Its important that all documents are consistent to minimize
future problems.
o 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).
o 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!
o 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 more than provide for your new spouse, and then leave
your estate to your children.
o Don’t forget, its 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 and
name himself as sole beneficiary on your retirement assets. Powers of attorney
can be very powerful documents.
o Watch the title to
assets. If you change assets to joint with your new spouse, your will won’t
affect those assets.
o 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 1/3rd your children!