The recent
news reports about Oleg Cassini’s estate got us thinking about estate planning
for second marriages, particularly a second marriage where the spouse is the
same age (or in some cases even younger) than the children from a prior
marriage.
One
possibility when there are children from a prior marriage is to use a trust for
the second spouse for life, with remainder to the children. The goal is to provide for the support of the
spouse during his or her lifetime, but ensure that the children will receive
their inheritance after his or her death.
By using a trust, the spouse cannot control what happens to the property
and divert it away from the children (for example, to a subsequent spouse
and/or children). An impartial trustee
can ensure that the trust is well managed and any distributions comport with
the trust terms. That may be a workable
strategy when the children are adults who don’t need immediate access to the
wealth after the death of their parent, and the spouse is close in age to the
deceased parent. But what if that is not
the case? What if the decedent does have
minor children from a prior marriage or relationship, so that the decedent will
need to meet the support needs of both the children and the surviving spouse? Or what if, as in the Cassini case, or even
TV’s “Modern Family”, the surviving spouse is around the same age as the adult
children, so that waiting to inherit until after the death of the surviving
spouse is not a viable option?
The best approach
in such a case may be for the decedent to create two separate pools of wealth,
one for the children and one for the surviving spouse. This can be accomplished by simply dividing
the estate under the Will into a share for the spouse and a share for the
children. The spouse’s share can still
be in trust, with the remainder after death going on to the decedent’s issue,
so that the wealth stays in the family. The
main problem with this approach is that if more than the $5,340,000 exemption
is left to the children, the estate will be subject to federal estate tax,
which is not at all desirable. In such a
case the pool of wealth for the children will likely have to be created either
by well-structured lifetime transfers and/or by life insurance held in an
irrevocable life insurance trust (ILIT) for the benefit of the children.
Another
option would be a shared discretionary trust with both the spouse and the
children as beneficiaries. The advantage
of this approach is flexibility in that the property can be made available to
the entire family with distributions made to those who most need it from time
to time. The disadvantage is that unless
family relationships are excellent, a shared trust is highly likely to become a
bone of contention and cause conflict within the family – again, not at all a
desirable result. Also, such a
discretionary trust could only be used in any case up to the remaining
exemption amount before federal estate tax would be imposed.
The
emotional factors at play in a second marriage situation can make estate
planning challenging. Ideally such
planning will reduce the risk of dispute between spouse and children by
providing appropriate wealth and financial security for all parties.
Disclaimer – Postings Not Legal
Advice
This blog is not legal advice and no
attorney-client relationship is formed.
The information and materials on this blog are provided for general
informational purposes only and are not intended to be legal advice. The law changes frequently and varies from
jurisdiction to jurisdiction. Being
general in nature the information and materials provided may not apply to any
specific circumstances. Nothing on this
blog is intended to substitute for the advice of an attorney. If you require legal advice, please consult
with an attorney licensed to practice in your jurisdiction.
