Protecting Your Assets and Preserving Your Wishes

Mike and Carol are a couple who both have children from a prior marriage.  Mike has three sons – Greg, Peter and Bobby.  Carol has three daughters – Marcia, Jan and Cindy.  After several years of marriage, they decide to execute Wills.  Wanting to keep it “simple,” Mike leaves everything to Carol, with the understanding that his estate will go to his sons if Carol predeceases him.  Carol does likewise.

Mike dies.  His entire estate goes to Carol. Carol dies.  Her estate goes to her daughters.  Because she inherited everything from Mike, her daughters not only receive her assets, but also the ones she inherited from him as well.  Mike’s sons get nothing.

Certainly, this is not what was intended.

Proper planning is necessary in order to avoid a scenario like the one stated above. Given that over fifty percent (50%) of all marriages end in divorce, there are many couples who each have children from prior marriages.  It is possible to take care of one’s spouse while insuring that the assets which each spouse brought into the marriage reverts to their respective families after both spouses have died.

Techniques to accomplish these goals include the utilization of a life estate for real estate and trusts as to various liquid assets.  A life tenancy in real estate allows a surviving spouse to live in a deceased spouse’s home under certain conditions.  However, when the surviving spouse dies, the home will pass to the family of the spouse who owned the property.  Trusts can provide income and principal for a surviving spouse, but insure that when that spouse dies, the remainder reverts to the family of the spouse who brought the property to the marriage.

Obviously, there are many variables which can be used for this planning.  When using a life estate, various issues must be addressed, such as who pays the carrying costs of the property and if the life estate can be terminated for reasons other than death (e.g. remarriage, entry into a  long term care facility).  When establishing a trust, conditions can be placed on when and to what extent the trust assets may be utilized.

In all, it is clear that proper planning transcends mere boilerplate.  It is especially important to plan cautiously in light of the fact that many assets, such as insurance and IRAs, pass outside of a Will.  Second marriages can present estate planning challenges. However, proper guidance can insure that a couple provides for each other while preserving the ultimate distribution of their assets for their respective heirs.


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