It's rare that an> inheritance passes from one generation to the next without leaving some scars. But smooth transitions are becoming even rarer thanks to the growing influence of a new player: the second spouse. As Americans live longer, they're more likely to move into second marriages, and legal experts and financial planners say the resulting friction with the kids is steadily mounting. In more cases grown children are going to court against their parents even while they're still alive, only to run up against a legal framework that leaves them with surprisingly few rights compared with their parents' new spouses. The once-sleepy field of trust and estates law is now brimming with hardened litigators. In Texas, personal-injury lawyers in search of big paydays have begun taking on will contests. And just as court squabbles are on the rise, so are prenups and sophisticated trusts that are designed to forestall them.
Naturally, there are more than bruised feelings at stake. The generation that s growing old now is arguably the wealthiest in history, and many of their baby boomer kids are counting on inheriting some of their dough. But that legacy is under threat. The stock market s nosedive and the housing slump have combined to wipe out $15.5 trillion in net worth in the last two years, according to the Federal Reserve. Along with this financial tumble, a growing number of would-be heirs face the biggest threat of all: a new stepmom or stepdad. According to a 2007 study by two Wharton professors, people over 65 are now more likely to be married than ever before, in large part because of a spike in late-in-life marriages. Even as the inheritance pie is shrinking, more family members are fighting for a piece of it.
In many cases children now feel that their only option is to fight for their legacies. Kids have the most leverage when Mom and Dad are alive, but some cross the line between encouraging prudent estate planning and outright harassment. "I have to tell the kids to back off," says Seattle trust attorney George Holzapfel. However, he notes that when proper planning is not done, the two sides often end up squaring off in court. When Holzapfel started his firm 35 years ago, it had no litigators that handled this type of issue-but the firm has added four in the past 10 years. And the courtroom battles are rarely pretty. "You can practically see the parent rolling around in the grave," says Brant Keller, a Naples, Fla., financial planner.
Kids Have No Rights
The average American, of course, figures people should have the right to leave their property to whomever they want. But the founding fathers kept in place a tradition requiring that the surviving spouse receive some sort of financial support. That concept evolved into what's now known as the elective share, which guarantees the surviving spouse a set percentage of the estate. Most states offer a third of the estate, but some go as high as half. (Georgia is the only state that doesn't stipulate that the surviving spouse get at least some dough.)
Furthermore, according to Hofstra University law professor Joanna Grossman, over the past few decades states have been awarding bigger "intestate" shares-the portion of the estate awarded to the surviving spouse when there's no will. Meanwhile, American parents can disinherit their kids entirely if they see fit. "When it comes right down to it, kids have no rights," says Ron Aucutt, a McLean, Va., attorney. The reasoning is that the spouse contributes to the growth of the family's assets, whereas the children only subtract from them by requiring food to eat, clothes to wear and college tuition to squander.
These principles don't necessarily fit an era where so many second and third spouses join families long after the kids are grown up. They also don't fit the in-touch-with-your-emotions ethos of this era. Today children's financial concerns become inextricably wrapped up with issues of familial affection, to the point where the child perceives what the parent does with his or her money as a reflection of loyalty and love. In such a supercharged state of feeling, children are increasingly willing to take their chances in court. Jim Hartnett, a Dallas attorney who specializes in trust and estate litigation, says those kids often have juries' sympathy on their side, if not the law. "Most people believe in the natural order, that the money should stay in the family," he says.
That's certainly how Neill Finkel assumed things would go. Neill's octogenarian father, Melvin, had shored up his sons' future by placing a big chunk of his multimillion-dollar estate into a family trust. But the Finkels' family harmony turned dissonant after Melvin married Amy, a travel companion almost 30 years his junior. The blended family feuded over Amy's spending, and it took two years of legal wrangling before they reached a settlement. Through her attorney, Amy says she would like to heal the rifts between her and the stepsons, but Neill says that's unlikely. He can "tolerate her presence" so his kids can see their grandfather, but he fears the money feud will erupt again.
Holler "We Want Prenup"
Couples who meet late in life can make their financial lives simpler, in theory, by simply shacking up, since staying single often makes it easier for a couple to keep their assets separate. In 2006 more than 1.8 million Americans above age 50 lived in heterosexual "unmarried partner" households, a 50 percent jump from six years earlier. When Judi Montoya of Seattle began a serious new relationship at age 57, she and her beau worried about how they might divide decades' worth of personal wealth down the road. "I'm sure he didn't want his assets to go to my daughter, and I didn't want my assets to go to his children," Montoya says. So they lived in what used to be known as sin. Only after five years did they make their commitment formal-but not before agreeing to a prenuptial agreement.
Once viewed suspiciously by most courts, prenups are now generally enforced, and they're practically standard for older couples entering a second marriage. Such couples tend to be more financially experienced and "not as hormonal," explains Jim Hennenhoefer, former president of the American Academy of Matrimonial Lawyers.
Another reason for the prenup boom: The kids demand them. Estelle Holzer of Chicago was 71 when she remarried. An insurance executive on the brink of retirement, she brought healthy savings to the union, including the proceeds from the suburban home she sold in order to move in with her new husband, attorney Jack Shore. Her daughter, Bambi Holzer, went to Estelle months before the wedding and advised her to draw up a prenuptial agreement. "I wanted to make sure his kids wouldn't kick her out if he passed away first," Bambi says. In the meantime, Shore was hearing similar sentiments-but considerably louder-from his three kids. They were worried about his downtown condo, which boasts Oprah as a neighbor, being passed to the newest member of the family.
In the end, the Holzers and Shores cobbled together a prenup that allows Estelle to remain in the condo if Jack should die first; the condo then passes to Jack's kids at her death. Jack also took out life insurance policies that ensured the kids would receive some cash when he died. The process was uncomfortable, but the Holzers say everyone was ultimately satisfied. "It brings out a lot of emotions, but she needed to protect herself," Bambi says.
In Trusts We Trust
A prenuptial agreement is essentially a blank slate that allows a couple to apportion their assets however they choose. But many estate planners prefer a more targeted strategy called a Q-Tip trust. The Q-Tip, short for qualified terminable interest property trust, is built for blended families. The parent's assets go into a trust designated for his or her heirs, but the income earned by the trust is paid to the surviving spouse throughout the spouse's lifetime. When the spouse passes on, the remaining assets are distributed to the children as previously designated. "It sets up boundaries, so the kids aren't worried that stepmom is going to take the money and run," Holzapfel says.
But Q-Tips cost a few thousand bucks to set up and administer. And they have their critics. Margorie Engel, a psychologist and former president of the Stepfamily Association of America, calls Q-Tips "the work of the devil." Her reasoning: The trust often puts the surviving spouse and the grown children in conflict. Often the spouse wants the trust to generate as much income as possible, while the children want it to grow-resulting in fights over how the assets are invested. And some trusts allow the survivor to make withdrawals from the principal for purchases, leading to squabbles over whether a Cadillac or an expensive handbag is truly necessary. Then there's the fact that the children resent the stepparent for surviving in the first place. "Can you imagine children waiting around for their stepparents to die? It's pretty morbid," says planner Keller. These conflicts are most pronounced in May-December romances, when the grown children are close to the same age as the new spouse.
Most lawyers and financial planners agree that the families that get cross-ways are those that don't communicate. Adam Gaslowitz, an Atlanta attorney who represented Neill Finkel, says there is a saying in the field: "People get over the loss of a loved one sooner than the loss of an inheritance."