Multiple Marriage Planning: His, Hers, Ours and Somebody Else’s
Presentation for Birmingham Estate Planning Council
September 1, 2011
Joe M. Goodman
Nashville, Tennessee 37219
© 2011 Joe Goodman
Joe M. Goodman Nashville, Tennessee
Joe M. Goodman is an attorney, CPA with Personal Financial Specialist designation and family business consultant with the Nashville office of Adams and Reese LLP, a regional law firm of more than 300 attorneys. He has authored numerous articles and two books, Business Succession Planning and Beyond (co-authored with Dirk R. Dreux, IV, and published by the American Bar Association; 1997) and Rich Widows Live Forever (Legacy Publications; Brentwood, Tennessee; 2004; www.richwidows.net). Joe is a co-founder and former director of Attorneys for Family-Held Enterprises (afhe), and was named as one of the nation’s 100 Most Exclusive Wealth Advisors and attorneys for several years by Worth magazine. He holds a Certificate in Family Business Advising with Fellow Status awarded by the Family Firm Institute, and he is a Fellow in the American College of Trust and Estate Counsel. Multiple Marriage Planning: His, Hers, Ours and Somebody Else’s Joe Goodman
I. Introduction
Estate planners have been very comfortable inside their own box for many years while work was routine and predictable. If taxes did not drive the bus, then they certainly were front-seat passengers. But, clients have not been happy with us for the past 30 or 40 years, to be honest. We provided technical solutions to issues associated with death and taxes. We competed for clients’ satisfaction on the basis of cost and simplicity. In fact, we marginalized ourselves as scriveners in many cases as we allowed clients to set the agenda and guide the scope of our assistance.
Over the last ten years, there has been trembling in the very foundations of our craft and professional services. Income, gift and estate tax rates were shifting within the list of priorities (remember in 1981 when the income tax rate on unearned income was 70%; the rate on earned income was 50%, and the capital gains rate varied in the mid-40% range). We saw the clues, but avoided dealing with the gathering clouds. And, now, we are on the verge of being replaced by the internet, apps, and easy-to-use software.
It is time to think out of the box – both lawyers and non-lawyers who render estate planning services on a high-quality professional basis. Today, it is my goal to either (1) allow you to think productively and excitedly outside your box, or (2) shake your box so hard that your entire body will be shaking as you leave this room.
Let’s discuss the implications of the two family tree graphs which ominously preceded this outline. There has been a big change in the institution of “family” over the past 50 years. The gradual changes have combined to create an entirely new paradigm that dramatically impacts estate planning concepts. Now, suddenly, tax considerations have fallen off the priority list completely for the vast majority of our clients. Do we find ourselves hopeless, helpless and defenseless? Will we remain paralyzed in our little boxes?
I am making this presentation for the first time. My efforts to identify helpful research material and sources were generally unsatisfactory [but, see Barnes, R. (2007, March/April), Till Death Do Us Part (Again), Probate & Property, pp. 34-37]. Until recently, multiple marriage planning was classified under “exotics.” Look again at the two genograms, however, and decide which is the more prevalent family tree standing in the forest today.
The old family tree never died, but it grew rapidly and branched out to encompass a myriad of new members. Perhaps we can agree that the traditional family tree has been 1381719.01 000999-360170 5/31/2011 dramatically changed because 40% of all marriages end up in divorce. Compounding this statistic is the fact that we are living much longer – on the order of 15 more years in the last century. This means that we are usually engaging in the simultaneous estate planning for three generations of the family. Look at the genograms again and count the number of marriages involved in each case. Now, add the increased instances of adoption, acknowledgment of children out of wedlock, long-term foster children, medically- assisted procreation, and “dynamic adoptions” (grandparents adopting a grandchild due to unstable family circumstances). Even gay children coming out of the closet in increased numbers manage to form family units complete with children. And stepchildren are everywhere. Wow!
Today, it is difficult to find the old family tree stereotype that was prevalent for perhaps 300 years. What are the implications for estate planning for the family clients, and for the estate planning practitioner?
II. Definitions Involved in Multiple Marriage Planning Scenarios
A. Second marriages in typical situations
B. Children by more than one marriage (again, in typical situations)
C. His, her and our children, and all their combinations
D. But, also consider:
1. stepchildren
2. out-of-wedlock children
3. late adoptions
4. long-term foster children
5. multiple marriages
6. late-in-life marriages
7. bonus: grandparents-grandchildren and the per capita conundrum
III. Popular Myths
A. “We’ve agreed to leave everything outright to the survivor of us and he or she will leave it equally to all of our combined children.”
B. “I love my wife’s (husband’s) children like my own.”
2
C. “My children are already well-provided for by the half of my assets I had to give to their mother (father) in our divorce.”
D. “His (her) ex-wife’s (ex-husband’s) family is wealthy and will take good care of those children.”
E. “I am scared to give (leave) assets to my children from my prior marriage because my ex-wife (ex-husband) will talk them out of their money.”
F. “I want to keep my assets in the bloodline because my father/grandfather would want it that way.”
G. “I don’t want to include adopted children unless I have a chance to know them and decide to include them or not in my estate plan.”
H. “…born in wedlock.”
I. “…natural-born children.”
J. “Stepchildren aren’t my grandchildren.”
IV. Stepchildren: Can They Be Loved?
I hate the Grimm brothers. It was bad enough that they gave a bad rap to stepmothers and stepsisters in the story of Cinderella. They expanded their bias and infected many generations with unnecessary prejudice and bias in the stories of Hansel and Gretel, Snow White, and even Rapunzel. Even the world’s number one nice guy, Walt Disney, did nothing to improve our impressions of stepfamily members. This, of course, only confirmed and ratified the earlier concepts of the traditional family that was practically void of divorce and remarriage involving multiple sets of children. Can we observe that today’s fairytales, feature-length cartoons at the movies, and television families are variations of the theme “we are the world” now?
A. Very subjective, qualitative, delicate, ambiguous and changing in nature.
1. going from zero to three
2. forced relationships
3. raising stepchildren
4. long-term versus short-term relationships
B. Book: “Stepfamilies”, by James H. Bray and John Kelly (Random House).
3 C. Unintentional omission from family trust: “If any child of mine is not survived by children or other issue…”
D. Loss of the common denominator in the family relationship
V. Trusts
Do we sometimes allow trusts to become a “control conspiracy” between the client and the estate planner in terms of crafting trusts in dynamic family relationship situations?
• Guilty conscience absolution
• Happy fiction of normalcy
• Clarity versus ambiguity
• Flexibility to accommodate far-reaching, long-term changes
• Demand for simplicity
• Cost-cutting pressures
• Dynasty trusts (bonus: in perpetuity foundations)
• Ego trusts (versus incentive trusts)
• Uniform Trust Code
VI. QTIPs
A. Conspiracy among men to retain financial control over their spouses from the grave.
B. Conceptually misguided to start with; sold by estate planners based on “saving” or “avoiding” estate taxes; why “all to spouse” anyway?
C. Multiple marriage context
1. convenient and guilt-free way to divide assets among different groups of children; but, stupid
2. age differentials between spouse and some children
3. longevity
4 4. ignoring advantages for surviving spouse’s children versus the other children
5. conflicts of interest
VII. Soft-Side Skills
A. Sociology, behavioral science and psychology
B. Estate planners are not therapists, not clergy, and not doctors
C. Assessment and interview process
D. Unintentional focus on technical aspects of estate planning
1. subconscious avoidance of real issues
2. subliminal hidden agendas
E. These issues bring you into the den, kitchen, car, bedroom, and the closet
F. Teamwork, introduction, and cooperation with soft-side professionals
1. seek relevant experience, not plaques and degrees
G. Don’t just turn the client loose with a telephone book
H. What about you? Psychology is not rocket science!
1. you have been dealing with soft-side issues for many years as an estate planner
2. if you do not tackle these issues, then who will?
3. see graph attached
4. “do no harm” issue
VIII. Cracking the Case
A. Deal with equality issues
1. “equal love”
2. “equal is fair”
3. stepchildren (and non-blood lines)
5 4. ex-spouse assets/family assets
5. “you simply cannot have equality”
B. Life insurance is often the easy answer.
1. create a large pot of unearned, undeserved, unexpected assets to share and divide among many family members; it is much harder to fight over a windfall than it is to fight over an allocation of earned or accumulated assets.
C. Divide assets sooner rather than later, outright or in current trusts.
1. mix it up; make it complicated; make “fruit salad” instead of cooking up same meal for each child or set of children.
2. cash now much more appreciated than a lot more stuff later.
3. assume your spouse will remarry after you’re gone (appreciate view for his/her children versus any others).
D. Avoid the old age slide in relationships (especially when the common denominator is mentally or emotionally ineffective or deceased).
1. “he didn’t come to see me on my birthday” can be fatal
2. dementia
3. undue influence
4. compare these issues in traditional families (same??)
IX. Estate and Gift Taxes – Today versus Prior Years
A. Huge increase gifting capacity during life or death without tax excuse.
B. Relatively simple as long as client will undergo an honest assessment process and extended financial and estate planning work.
C. Give kids assets “now” and give home and retirement assets to spouse; life insurance??.
D. Very important considerations in the family business context
E. Surviving spouse is not entitled to it all.
F. How much is “enough”?
6 G. Amortize principal to generate cash flow.
H. Charitable bequests and trusts (can obscure who lost out).
X. New Look at Where You Are Standing Outside the Box in Multiple Marriage Planning
A. Now, consider and compare the traditional family planning process anew.
1. wills, trusts and taxes look different now, don’t they?
2. that $5 million estate and gift tax exemption offers huge new planning opportunities (even for the under $5 million net worth family)
3. sharing family wealth cannot be addressed with canned documents and simple planning
4. longevity
5. mental competence
6. emotional stability
7. family business
8. family inheritance
XI. Summary
Replace the title “Multiple Marriage Planning” with the more simple title “Estate Planning.” General estate planning is more alive than ever now that clients and practitioners are largely freed from the shackles (false issues and mandates) of taxes. We are among the most important people in the world today. We have increasing importance as family wealth increases in size and significance. The value of our services cannot be measured in dollars. If you successfully convey the scope and nature of your estate planning services at the outset, hourly rates, fees and charges should not be an issue. Drafting wills may be valued at $1,000 (or less). Financial and estate planning for the dynamic family with a net worth of more than $1 million is alive and well as a craft, an art, an expertise, and a necessity. It is ironic it took the recent dramatic changes in the gift and estate tax laws to allow us to focus on the most important issues facing our clients.
7 Process Boundaries
Communication Process With Family System Issues
dialogue pain addiction
agitation conversation dysfunction
Client You
interaction intervention
questionin g therapy
Measuring Stick
1 3 4 7 8 10
How Far Can You Take the Client Relationship?
1381719.01 000999-360170 5/31/2011