BALTIMORE — Worried about estate taxes affecting your clients? If they've been married more than once, then forget the taxman, says attorney John Scroggin.
The unforeseen legal consequences wrought by a second or even third marriage can undo careful estate planning and leave heirs disenfranchised and bitter.
Financial planners can alert clients to the ramifications of remarriage. "It's a great way to show the value that you're adding," says Scroggin, who was speaking at the Financial Planning Association's annual conference.
Among the red flags advisers should look for: Who gets the personal belongings of a deceased parent?
"How do you prove title to personal property? You can't," Scroggin says. A car may come with a title, but a family heirloom like a grandma's necklace doesn't.
A parent may say that specific items should go to a particular son or daughter, but proving that they actually belonged to the parent rather than the new spouse is difficult.
"A client dies, and then we come in and we say this table goes to the kids and the new wife says, 'Oh no, we bought that in Europe' or 'He gave it to me,'" says Scroggin, who is based in Roswell, Georgia, a suburb of Atlanta.
Clients planning to live in assisted living communities during retirement should know which states are pricier than others.
Situations like that have spurred Scroggin to develop a rule of thumb: "When a client dies, the first priority is to change the locks."
After one of Scroggin's clients died, he arrived at the client's house to find distant relatives and neighbors were already there to pick up personal belongings they claimed were left to them.
"One person was trying on clothes while another was walking out the front door with a toaster under his arms," Scroggin says.
Even the death of a parent and the new spouse may not necessarily untangle matters for potential heirs. Scroggin points to a case of his where the husband's death was followed three days later by the death his new wife.
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"Her kids [by a previous marriage] came in and said all the property is ours. Why? Because when the surviving wife was alive for those three days, she inherited the property," he says.
DISENFRANCHISED HEIRS
Scroggin, who has been an attorney for 37 years, also advises that clients should consider prenuptial agreements, something that could be particularly useful for those with existing children and remarrying later in life.
"This is no longer a document for the rich," he says.
If a divorced client gets remarried, it's best to verify who the beneficiary is listed on the client's accounts because the old spouse could end up inheriting the assets, Scroggin says.
Advisers also need to be aware of how state laws affect inheritances, he says. For example, some states permit the surviving spouse to continue living in their deceased spouse's home. Should the deceased have had children by a prior marriage, then they could be waiting a while before they receive their inheritance – which may be a particularly thorny issue if most of the deceased client's wealth is tied up in the home, Scroggin says.
"When you have clients moving from one state to another, and particularly in a second or third marriage, they need to sit down with an attorney and understand what rights that spouse has attained because of that move," he says. "You want to alert them that they really need to go back and look at this stuff."
What they find may surprise them.
"In Oklahoma, the surviving spouse has a right to the family bible," Scroggin says.
