In most situations, planning for the traditional nuclear family is straightforward.  When a husband and wife with children come in for estate planning, chances are that their wishes will be the same.  Each of them will want to leave their estate to the survivor after the first death, with the assets to be left to the children after the second death (the so-called “sweetheart” disposition).

But second marriages are more difficult, especially when there are children from prior marriages.  The spouses will often (but not always) want to make provision for the surviving spouse.  But at the end of the day, they want to be sure that the assets end up with their children (and not the surviving spouse’s children).

In this situation, the client’s concern is usually that leaving everything outright to the surviving spouse could effectively disinherit their children.  Husband wants to take care of Wife, but knows that if he leaves everything to her, she might leave it all to her children (and not his) at her death.  Wife has the same concerns.  Here are a few ways to address this situation.

Set Up a Trust

The preferred strategy in this situation is a trust.  The trust could be established at death through a Last Will and Testament (a testamentary trust) or during the creator’s lifetime (an inter vivos or living trust).

The use of a trust allows each spouse to control how the assets will be handled after their death.  Instead of leaving the property to the spouse outright, the spouse only has the use of the property during his or her lifetime.  At death, any unused property is distributed to the children of the predeceased spouse.

If both plans are set up this way, the predeceased spouse’s children will end up with the predeceased spouse’s assets at the death of the surviving spouse.  At the same time the surviving spouse’s children will end up with the surviving spouse’s assets.  This usually mirrors the intent of the parties.

Of course, there is still the possibility of wrongdoing.  The surviving spouse could hoard all of his or her own assets and drain the predeceased spouse’s trust.  This would effectively shift assets away from the predeceased spouse’s children to the surviving spouse’s children.

Opportunities for wrongdoing can be minimized by careful drafting.  A well-drafted trust could provide, for example, that the surviving spouse is to use his or her own resources before dipping into the trust assets.  An independent third-party trustee could be appointed to oversee distributions.  Precautions like this can help assure the clients that their wishes will be honored.

Note:  Some probate avoidance techniques, such as co-ownership and beneficiary designations can be particularly dangerous in a second-marriage situation.  When spouses hold property jointly with rights of survivorship or are named beneficiaries on each other’s accounts, the property involved will pass automatically to the surviving spouse at death.  The surviving spouse can then freely disinherit the predeceased spouse’s children, and there isn’t anything they can do about it.

Contractual Solutions

Agreements can also help second-marriage estate plans. The most common is a contract to make a will.  In this arrangement, the spouses would agree with each other to make both sets of children the beneficiaries of both estates.  No matter who dies first, the children of both spouses will share equally in the estate at the death of the second spouse.

Written agreements are a somewhat clumsy solution when compared to a trust.  There are too many possibilities for asset shifting during the surviving spouse’s lifetime. For example, the surviving spouse could shift assets to his or her children while still alive, reducing the amount to distribute at death.  Because there is no opportunity for a third-party trustee or fiduciary accountability standards, malfeasance of this nature can be difficult to police.

Every trust or estate arrangement involves a relationship between a fiduciary (the personal representative of the estate or trustee of the trust) and the beneficiary (the person or organization that is entitled to the assets).  There can be multiple fiduciaries and/or multiple beneficiaries, but the same relationship applies regardless of number.

The fiduciary holds legal ownership of the property.  This means that the fiduciary technically has the power to deal with the assets.  But the fiduciary doesn’t hold the property for his or her own benefit as such.  Instead, the fiduciary must handle the property in the best interest of the beneficiaries, who hold equitable title to the property.

It is not uncommon for disagreements to arise between the fiduciary and the beneficiaries, especially when a family member is named as fiduciary.  If there is already dysfunction in the family, the authority inherent in the role of fiduciary can go to the fiduciary’s head.  When the fiduciary starts abusing the power, disputes arise.

I had a case recently that involved just such a mess.  The oldest son resented the fact that his younger brother was chosen ahead of him as executor of his father’s estate. The younger son was almost giddy with the decision and didn’t miss a chance to rub it in.  When it came to making decisions regarding the property, the two brothers would always disagree, even when agreement would be in their mutual best interest.

Problems also arise when the trustee of a trust is also a beneficiary.  In this case, the trustee where’s two hats.  Say, for example, that the trust instrument gives the trustee the discretion to choose which assets will be distributed to which beneficiaries.  Assuming the trustee is also a beneficiary of the trust, can the trustee distribute cash to himself and hard-to-sell illiquid assets to the other beneficiaries?

The answer is “no.”  In situations like this, the attorney should be very clear that the role of personal representative or trustee is a fiduciary role.  The trustee cannot use that role to favor himself or herself as beneficiary of the trust.  He or she must fulfill trustee duties in as fair and impartial manner as possible.

But fiduciaries aren’t the only parties that get confused regarding their roles. The beneficiaries can also cause problems by taking it upon themselves to interfere with the day-to-day administration of the trust.  Absent some unusual provisions in the Will or trust instrument, this sort of interference is beyond the scope of the beneficiary’s role.  The trustee is responsible for the management of the trust.

A health care power of attorney, also called a health care proxy or health care surrogate, is a medical power of attorney that allows a person, called a principal, to appoint another person, called an agent, to access his or her health care records and make medical decisions on his or her behalf.

Parents generally have this authority over their children while they are underage. But once the student reaches age 18, parents can no longer review their medical records or make important medical decisions.

There are many reasons why parents and students would want the parents to be able make decisions on their behalf. If, for example, the student is severely injured or becomes mentally incapacitated, the parent should have the right to step into the student’s shoes for healthcare purposes.  A health care power of attorney gives the parent this ability.

Many universities recommend health care powers of attorney for college students.   And the ranking member of the Senate Health Committee, New York State Senator Kemp Hannon, recently made a public statement encouraging parents to obtain a health care power of attorney before their student left for college.

As parents, the last thing we want to think about is the possibility of our children ending up in the hospital while away at school, but we need to always be prepared for the worst.  As a concerned parent whose child is in the hospital, the last thing you want to hear from the hospital staff is that you cannot receive any information on your child’s status or make any decisions. However, without a health care proxy, that’s exactly what will happen.

Completing a health care power of attorney will provide parents and students with the assurance that federal law (HIPPA) privacy rights will not prevent the parent from accessing medical information if a medical emergency arises while the child is in college. If the child will be attending college in another state, it is good practice to complete a health care power of attorney in both the home state and the state where the child attends college.  The power of attorney should be provided to the college health care center.

The terms per stirpes and per capita come up often in estate planning documents.  They are as confusing to clients as they were to me as a first-year law student.  But they are so deeply embedded in the legal vocabulary that they don’t appear to be going anywhere. And, as terms of art, they do convey a bunch of meaning in a few syllables. So let’s take a shot at explaining them.

Both per stirpes and per capita are used to describe the situation where a person leaves property to someone who predeceases them.  Say, for example, that Joel makes a Will leaving his assets to his five children.  One of the children, Sam, predeceases him leaving five children of his own.  Who gets Sam’s share of Joel’s assets?  The answer depends on whether the distribution is made per stirpes or per capita.

Per Capita Distribution

Per capita is a Latin phrase meaning “by head.” In a pure per capita distribution, you simple count the number of heads. Each of them receives an equal amount.

In the above example, assuming Joel’s will left his estate to his children and grandchildren per capita, the estate would be divided into 9 shares.  Each of Sam’s five children would get one share.  The other four shares would be divided among Joel’s four surviving children.

If you think about this, this is not what most people would want to happen.  The one-fifth that Sam would have received if he had survived gets transformed into a 5/9 interest in the estate.  Over 50 percent of the estate is distributed to Sam’s descendants, to the detriment of Joel’s surviving children.

Another option would be for Joel to leave the property “per capita to such of my children as survive me.”  But this also has a problem: the entire estate would be distributed in equal quarters to Joel’s surviving children.  Sam’s children get nothing.

A final option would be to make the distribution “per capita at each generation.” Under this approach, the assets would be divided at the first generation, with one share allocated to each surviving or predeceased child.  Each surviving child would get one share.  The remaining shares would be distributed per capita among the children of any of the predeceased child.

Per Stirpes Distribution

Per stirpes is a Latin phrase meaning “by root” or “by branch.” Per stirpes distribution is much more common than per capita distribution.  It more closely matches  how most people would want their property distributed if a child predeceases them.  In per stirpes distribution, the descendants of any deceased child inherit the share that the child would have taken if the child had survived.  This is known as a right of representation.

Going back to our example, in a per stirpes distribution, the property would be divided into five equal shares at Joe’s death.  Each of Joel’s four surviving children would be entitled one share.  The one-fifth share that would have gone to Sam is instead distributed among his descendants in equal shares.  Because he has five children, each of them will inherit a 1/25 interest in Joel’s estate.  Collectively, this is the same amount that Sam would have inherited had he survived.