WEALTH DISTRIBUTION REQUIRES PLANNING
Q: Although my wife and I are not divorced, we read your column every week because we always seem to find some useful, practical information that we can use. Here’s our predicament:
My wife and I live in a small town and own a business that we have operated for nearly 40 years. We recognize that we must begin making plans for our retirement and to pass our assets down to our two sons. One son works in the business with us and is getting ready to marry for the first time. The other is a lawyer who has been divorced twice, pays through the nose to two families, and is getting ready to jump into a third ill-advised marriage. Although we want to treat our sons equally, we do not want our business – which is our major asset -- sold out from under the son who works there or divided by some court between our sons and their ex-wives. Could you give us some pointers as we really don’t know where to start.
A: In the old days, wealth passed from one generation to another in an easily-identifiable form -- land -- that did not change character or form. Today, however, wealth takes many forms that can change and lose their original identities very quickly. And new laws make it increasingly difficult to pass wealth on to the next generation with any assurance that the benefit will always be enjoyed by the intended beneficiary. The application of the term "marital property" to gifts or inheritance received by one marital partner can cause chaos. This, coupled with an almost confiscatory estate tax that is imposed upon massive estates, makes planning absolutely essential.
You have spotted a problem that needs immediate attention. And you cannot spare the expense here if you want a good job done. Assuming your have resolved your long-term care planning issues, you should hire a qualified estate and tax lawyer who has some knowledge of matrimonial law. If you can't find this somewhat rare combination, then find an estate and tax lawyer and hire a matrimonial lawyer who has sufficient knowledge in this area on a consulting basis.
But be forewarned that whatever you do, there can be no guarantee that you will avoid the matrimonial theories of commingling, transmutation, and personal effort that might be applied by divorce courts to the properties you transfer by gift or will. Here are your problems and some suggestions:
1) If you intend to share your wealth with your sons, do it before they marry. With respect to the son who has never been married, subject to valuation, tax, and control issues, this should be comparatively easy. With respect to the lawyer, although he is not currently married, any such transfer might trigger lawsuits to increase support or alimony by wives # 1 and 2.
2) You may want to consider the use of an irrevocable trust with discretionary distributions of income and principal based on need. But remember that income and assets received from non-marital property that is devoted to family use is generally treated as marital property. This may create the problem you want to solve, but to a lesser degree. The trustee can accumulate the income unless really required by the beneficiary and you must accept the fact that all distributed income will become marital property.
3) Try to make sure your sons enter into premarital agreements that define very specifically the term "separate property."
Hopefully, these suggestions will put you and your wife on your way to hiring the experts who may be able to help you solve these very interesting, yet complex, questions.
SoloFact: Who can you trust? When you are in the throes of matrimonial discord, you must understand the difference between "confidential" communications and "privileged" communications. "Privileged communications" are those which can not be divulged without your consent and are generally limited to communications that occur either between you and your lawyer or between you and your minister so long as some general guidelines are met: (1) the professional relationship is established, (2) the communications originated in confidence, and (3) you do not disclose the communications to third persons such as friends, neighbors, or family. To be on the safe side, you should never take any third person with you when you discuss matters of a confidential nature with your lawyer or minister.
Jan Collins Stucker is an award-winning writer and editor. Jan Warner is a matrimonial, elder, and tax attorney. Both are based in Columbia, South Carolina. Flying Solo is seen in newspapers throughout the United States and can be found on the Internet at http://www.flyingsolo.com.
Please email your questions to janwarner@flyingsolo.com or by mail to P.O.Box 11704, Columbia, SC 29211. To receive American Academy of Matrimonial Lawyers "Divorce Manual," send $7.50 payable to AAML Fulfillment, and we’ll make sure you receive your copy.
