Wednesday, January 17, 2018

Estate Planning for a Second Marriage

Estate planning is an excellent tool for balancing interests and taking steps to avoid future pitfalls. Nowhere is that more evident than when we assist couple contemplating second marriages with blended families plan for the future.

Arthur and Beth have an interesting story; they met when they were kids and got married as they reached retirement age. Both of them had previous marriages and children, but after years apart, they reunited through the charity work they did in their 60’s after retiring from their original careers. While it took them a while to engage in the estate planning process, they both saw the benefit of an estate plan when it came to achieving their goals.
When Arthur and Beth combined their lives, they did so carefully, not wanting to worry their respective families about sudden changes. This meant that they clearly delineated who paid for what in their marriage, but also helped them to assess their financial situation and evaluate what the other would need in order to continue to live comfortably after one of them passed away. Neither wanted to find themselves unprepared because they had given up some aspect of their independence. This strict organization allowed us to create a plan that allowed each of them to know that the other would be cared and provided for if they were to pass away first and also know that their own children would be the ultimate recipients of their assets.
Mindful of the concerns their children might have of losing their potential inheritance, and aware that Michigan law provides a surviving spouse with specific benefits related to the deceased spouse’s estate, Arthur and Beth negotiated and executed a Prenuptial Agreement that provided that each gave up any rights to the others assets that might be available under Michigan law either in a divorce or at death. They did specifically agree that their respective Living Trusts would contain provisions that benefited a surviving spouse.
Both Arthur and Beth have their own Living Trusts, which are now the owners of the assets they previously owned individually. This means that when either of them passes away, their respective successor Trustee will only control those assets, and the surviving spouse (and his or her family) has no fear that he or she will lose control of their own assets. The two trusts are similar in that they each provide the surviving spouse with the right to receive distributions of the trust’s income and principal sufficient to cover the costs that the deceased spouse had paid during their lifetime. This ensures both Arthur and Beth that the death of their partner will not be more difficult due to a sudden financial change. However, bank accounts and bills are not the only part of Arthur and Beth’s assets that their estate plan addresses.
When they married, Arthur sold his home and moved into to Beth’s condominium. To ensure that if Arthur survives Beth he does not need to immediately look for a new home, we included a provision in Beth’s Living Trust that allows Arthur to continue living in the residence as long as he is alive and pays for a designated portion of the expenses. This benefits Arthur and protects Beth’s children by giving each guaranteed rights regarding the property. Under some circumstances we include a provision that gives the surviving spouse the right to require the Trustee to sell a residence and use a portion of the sale proceeds to purchase a new residence (in the name of the Trust) if the surviving spouse wishes to move. Arthur and Beth did not opt for this level of complexity in their planning, knowing that if Arthur choose to move he had sufficient assets from the sale of his home when they married.
When dealing with blended families it is also worth noting that the selection of Trustees and other designees may become more difficult, with children feeling slighted if parents omit them in favor of second spouses or the other spouse’s children. This situation often gives rise to distrust and insecurity, which can threaten the implementation of even the best planning. To address these concerns with Arthur and Beth we took an approach that provided everyone with a bit of responsibility and accountability.
During their lifetimes Arthur and Beth named each other as Co-Trustees of their respective trusts, making it clear to their children that they had the utmost trust in their new partners. After the death of either of them, the surviving spouse will serve as a Co-Trustee with one of the deceased spouse’s children, but in the event that there is a disagreement between the surviving spouse and their Co-Trustee, the spouse retains the authority to act without the Co-Trustee’s consent. This allows the deceased spouse’s children to have a hand in the management of their parent’s trust and have insight into the use of the funds that will eventually pass to them, but does not overly burden the surviving spouse by requiring them to “beg” their late spouse’s children for funds.
Arthur and Beth provide good insight into a blended family that works well together and in the end is likely to implement their planning with little trouble. They also are an example of how with proper planning it is possible to provide for loved ones and charities in a more advantageous manner. Our next blog will address this aspect of their planning in detail but as you can see, the insight of experienced professionals can be the difference between peace and quiet and war and peace when it comes time to administer an estate plan.

Matt and Al

Monday, January 15, 2018

Planning for the Here

While much of the focus of an estate plan is on the hereafter, it is important to remember that a Living Trust, Durable Power of Attorney, and Patient Advocate Designation make up parts of the “here” planning as well. When a client begins to reach a point where they cannot manage all of their own affairs, those documents become the workhorses, helping loved ones assist in their care.

Ursula was a strong independent woman who had lived nearly thirty years after the death of her husband without ever considering remarriage. She had two grown children, Vivian and Walter, and three grandchildren, lived alone in the house she and her late husband had built nearly fifty years earlier, and was generally healthy. However, as happens to everyone, time eventually began to catch up with Ursula and it became more difficult to handle her own affairs.
First, she stopped driving at night, then limited her driving distance, but eventually Ursula admitted that it was no longer safe for her to drive at all. With this admission began the discussion of whether living alone was still a good choice but Ursula was not interested in selling her home, so Vivian and Walter did not press the issue. Vivian lived relatively nearby and did not work fulltime, so she was able to assist her mother when needed. The grandchildren also served as drivers when necessary.
As these changes began happening on a daily activity level, we became involved to update Ursula’s planning. We discussed the various parts of the estate plan and reminded Ursula of why she had the documents in the first place and, following those discussions, we helped her make some changes to her plan.
First, Ursula decided that it made sense to make Vivian an immediate Co-Trustee with herself to ensure that, if necessary, Vivian could manage any of the Living Trust’s assets in the event that Ursula was unable to act or simply did not want to deal with investment decisions and banking transactions. We also updated Ursula’s Power of Attorney to make it immediately active and named Vivian to act under that document for the same reasons. While Vivian (and Walter as the successor designee under both documents) had no desire to run their mother’s life, all the parties involve recognized that a time could come when it was easier on Ursula for someone else to act in her stead, and at her direction. Everyone involved recognized that Ursula was still in control and that any action taken by Vivian must be in Ursula’s best interest. This is not to say that Vivian could not take an action that benefited herself if Ursula so directed, but we did stress the importance of Vivian’s fiduciary duty to Ursula.
As time went on, circumstances did eventually arise where Vivian needed to act on her mother’s behalf, initially simply because Ursula did not want to be bothered, but later in order to manage affairs as Ursula developed additional health issues that limited her mobility. The documents prepared allowed Vivian to organize and simplify all of Ursula’s finances, consolidating her multiple bank accounts into a single account. As Ursula consented to moving to a senior living community, Vivian was able to sign documents for Ursula’s new apartment and handling the closing on the sale of Ursula’s home (she was delighted that one of her grandchildren purchased it). All of these transactions took place at arm’s length to ensure that there was no question that Vivian was acting in her mother’s best interest, and had the family dynamic been different additional documentation could have been provided to assure Walter that his sister was acting in their mother’s best interest.
In the end, due to the years of serving as Co-Trustee with her mother, when the time came for Vivian to administer the Living Trust after her mother’s death the process was simple, requiring little more than the writing of a few checks and the closing of a bank account. Nevertheless, this simplicity was borne from good planning; planning that gave Ursula piece of mind and made her later years less stressful. This is the result of good, ongoing communication with experienced professionals. Had nothing been done with Ursula’s planning as her life began to change, her later years would have been more difficult for Vivian and Walter. Always be aware that your estate plan is more than just a set of documents to be used after your death. Your estate plan is part of a process that needs regular updating to ensure that it still meets your current needs.

Matt and Al