Spring- a wonderful time when everything seems so vibrant and alive! The grass is back to green, the flowers unfold with nature's colored light show, and my peach and apricot trees will soon reward me with little bundles of joy. Unfortunately, as I sit here writing this article in late March from my New York office, all I see are bare, brown trees and remnants of dirty snow mounds with shivering people walking briskly in the parking lot. What a difference a couple of thousand miles and a month make!
Let's talk about second marriages and estate planning. I agree, not a very good segue, but allow me the shift none-the-less. With a statistical failure of 50% of marriages nowadays, planning for who and how you leave your assets to can be more complicated than you realize. Further complicating things, the type of assets you leave to the next multi-family generation makes what should be a simple action into a very complicated one. Since for the most part we own real estate, let's look a bit more closely at the leaving of our house to our children in a second family marriage. Seems simple enough: the wish is when both parents are gone, the house is to be liquidated and the money split between the children. If it were cash and securities, the action is relatively simple- sell the securities and split the money. A house... not so easy. Let's equate the house to a business. If you were to leave a business to children of two families, or any two people for that matter, the business would have to continue to run, at least until it is sold. Do the heirs have the expertise and experience to run the business without running it into the ground? Anyone in business knows every day there are dozens of decisions to be made- is there someone capable of doing so? There are loans and leases, inventory and employees, upkeep, billing, collections and client care: every day, every hour, every minute. Leaving a house to multiple parties- even multi children of the same parents- and be dicey. The same type of decisions must be made by two or more parties who suddenly are partners in a house, essentially a business, who have never worked together before but are now jointly responsible for all the decisions necessary until the house is sold and the net proceeds split as per the terms of the will. Complicated. Confusing. Sometimes, it can split apart families... its funny: when money is involved, personalities changes... not usually for the better.
One of the many ways to alleviate this perplexing and potentially family splitting action is to utilize a trust. There are many kinds of trusts, and the involvement of a qualified estate planning attorney is essential to get this one right. In the basics, the house is gifted to the trust- an entity just like a third-party person. The trust has its own tax payer number, files its own taxes and most importantly, holds all the rules you and your partner decide as to how the house or any other hard asset is distributed. You can dictate who is responsible for the clearing out of the contents, what goes to who, how and if money is to be invested to improve the salability of the house, who hires and interacts with agents or other professionals, and ultimately disburses the ultimate net funds, known as the trustee. The more decisions you take out of the next generations hands, the smoother the transaction and procedure will go. Without proper planning, you just may leave behind a mess that ultimately may split the family apart rather than bringing them together. For every action there is a reaction they say... do your best to keep the reaction to remembering you as the wonderful folks you were, not just the conflict that was created at the end. And if you're wondering what Spring in Seville has to do with leaving your house to your kids... nothing really, I guess I'm just missing my beautiful view of the 18th from my backyard. As for seeing you on the tee... it may just take me until after tax season!