In 1995, wealthy oil tycoon J. Howard Marshall died at 90. Almost immediately, a spate of lawsuits erupted between his 27-year-old widow-former Playboy playmate and fashion model Anna Nicole Smith-and his children from a previous marriage. The heated litigation continued even after her death, years later.
Less sensational but similar situations are cropping up everywhere-driven in part by the aging population and a concomitant spike in second, third and even fourth marriages. A 2007 study by a pair of Wharton professors found that Americans over 65 are more likely to be married than ever before, primarily because of longer lives and late-in-life marriages. Other studies show that almost half of all weddings in this country are not first-time marriages.
While this may be good news for romantics, it's often not so welcome for baby boomers who had counted on big inheritances but find out instead they have to share with interlopers. "I've seen a meaningful increase in acrimony between children and new spouses over inheritance issues," reports Chris Ure, senior vice president with UBS in Boca Raton, Fla.
But he and other veterans of inheritance wars are arming themselves with techniques they say are proven to head off intrafamily frictions and ensure estates get distributed according to their wealth-holders' wishes. Here is their advice.
The Elective Share
To be sure, all states except Georgia guarantee surviving spouses a percentage of their deceased spouse's estate, regardless of the terms of the will. That percentage-half in some states, a third in others-is called the "elective share." Needless to say, it doesn't suit everybody equally.
"The elective share is designed so the surviving spouse doesn't end up in the public charge," explains Brian Raftery, a partner in trusts and estates at New York law firm Herrick, Feinstein. "But to override that, you need a prenuptial agreement, which is basically just a spousal contract that changes the default rules."
Though often associated with divorce, prenups can make a family home go 100% to the surviving spouse (who lives there) and not the children (who don't), or give the family business to the children (who already work there) but not the spouse (who'd rather stay out of it anyway, thank you).
"Most people with significant assets who remarry do enter into prenuptial agreements to effect a waiver of elective-share rights, or at least limit the amount of the estate to which the surviving spouse is entitled," says Nancy Fax, managing partner at Pasternak & Fidis, a law firm in Bethesda, Md. "In these situations, divorce is not the primary concern. Protecting assets for the children of the first marriage is critical."
In short, prenups can define what is whose, and what isn't. They "characterize the individual assets," says Victoria Kaempf, senior estate planning attorney at San Francisco-based law firm Howard Rice Nemerovski Canady Falk & Rabkin. This can be especially important in community-property states such as California, where surviving spouses are entitled to half of all community property-or all of it, if there is no estate plan. What constitutes "community property," however, is the crucial question.
"If the surviving spouse claims an asset is community property but the children from a prior marriage claim it's the decedent's separate property," Kaempf explains, the prenup "could determine how the estate is allocated ... and eliminate a court battle."
In addition to helping divide an estate, prenups can establish separate financial obligations. One typical example is life insurance to compensate the surviving spouse for giving up the elective share. "Written into the prenup, the insurance policy should pay a sum that's at least equal to the value of the elective share," says Raftery.