Getting Married or Divorced? Consult with an Estate Planning Attorney to make sure your affairs are in order.

Dear Len & Rosie,

My friend’s husband died three months ago. She and her husband recently married, but had lived together for 30 years. He owned the house in his name alone. Unfortunately there was no will. He has a daughter from a previous marriage who is trying to take the house. Additionally, she’s been told that she’s not entitled to his Social Security. Is there anything she can do to keep the house? I just can’t believe his daughter is entitled to take something that was never hers.

Debbie

Dear Debbie,

Your friend’s husband died without a will. That means his home and everything else in his estate shall pass by intestate succession - the word “intestate” means “no testament” as in “Last Will & Testament.” Intestate succession the California Legislature’s best guess as to how most people would want their assets distributed when they die. It’s a shame our government declined to disinherit wicked daughters from prior marriages.

Your friend inherits all of the community property, but there isn’t any if he was already retired when they got married. She will also inherit either one-half of his separate property, if her husband had only the one daughter, or one-third of the separate property if he had more than one child. At best she’ll own only half of the home.

The only way your friend would be entitled to more than that is if she could prove that her husband promised to leave her everything, or at least the home, and that there’s a written contract or she acted to her own detriment in reliance of her husband’s promises. Please understand that this is a Hail Mary Pass and isn’t likely to succeed unless she has a lot of evidence in her favor.

Your friends could have avoided this if they had only made wills leaving everything to one another. They could have even made wills for free by downloading the California Statutory Will form from the California State Bar Association at www.calbar.ca.gov.  If he had wanted to protect his daughter too, he could have created a trust that gave his wife the right to live in the home until her death. But it’s too late for that. The best your friend can do now is to make a deal with her husband’s daughter. Maybe she’ll be willing to forgo selling the home now in return for inheriting the entire property upon her step-mother’s death.

As for Social Security, the rule is that you have to be married for one year for a surviving spouse to collect a pension off of the deceased spouse’s earning record.  If your friend’s husband died before their first anniversary, there’s nothing that can be done.

We hate to be the bearers of such bad tidings but we do so in the hope that readers of this column will take note. Everyone wants to save money, but with regards to estate planning, saving money in the short term frequently costs more money and creates more problems in the long term. Getting married or divorced is always a reason to consult with an estate planning attorney to make sure that your affairs are in order. If your friend and her husband had done that, she wouldn’t be in suchtrouble today.

Len & Rosie

How Can I protect My Inheritance From Myself

Dear Len & Rosie,

My parents are fairly wealthy - they are worth over five million dollars. Is if there any way I can put a barrier between me and my inheritance? I tend to be irresponsible with money. I played the lottery a lot and I used to make high risk investments. Some investments have paid off but more have lost money. If I suddenly came into a million dollars, I don’t know what would happen. I don’t really trust myself. How do I tell my parents something like this without outright saying I am a bad person?

Dear Sam,

The first step towards solving any problem is recognizing you have a problem. You are certainly not a “bad” person because you lack prudent investment skills. There are several approaches you can take to preserve your inheritance once you get it.

Given that you’re a lousy investor, get help. Don’t listen to the little voice in your head that says to hold onto an investment that isn’t doing well. Making investment decisions based on hunches alone isn’t investing. It’s gambling. Instead, hire a financial advisor with a good track record and rely on that person’s advice. Consider having two separate financial advisors, so you can see how well they do against one another.

You should also talk to your parents. Instead of leaving you an inheritance outright, they could create a dynasty trust for your benefit. The idea behind a dynasty trust is that there are three fundamental problems with inheriting wealth. You can get sued and lose your inheritance. You can get divorced and see your spouse drive into the sunset in a Lexus your parents paid for. And, if you’re lucky (or have a skilled financial advisor) you could do very well with your investments, so well in fact that your children will have to pay federal estate tax on your death.

A dynasty trust is, at its heart, a “spendthrift” trust that is not subject to the claims of the beneficiary’s creditors (except for child support creditors and the IRS). It’s also a convenient means of protecting your separate property inheritance in the event of a divorce. And your inheritance, and all of its appreciation, will be exempt, for the most part, from federal estate tax on your death.

With a dynasty trust, your parents can create a framework to manage your inheritance. The trust could require you to hire a financial advisor. If you are extremely bad with money, they could go so far as to make someone else your trustee, perhaps a brother or sister. Or maybe you and another person can be co-trustees, and you could be restricted from spending over a certain amount without your co-trustee’s agreement. Your parents can also write restrictions in the trust as to how assets are to be invested. They can allow you to leave the trust upon your death to anyone you want, or they can require you to leave it to family members only.

It’s important to remember that proper estate planning isn’t done by filling in the blanks on a one-size fits all boilerplate document. It’s about analyzing an estate and developing a multi-generational estate plan that will help your parents and their children achieve your goals.

Len & Rosie