The consequences of nonexistent or inadequate estate and business planning in a second marriage can be devastating, particularly when spouses have children from a previous marriage and there is tension between children and the surviving stepparent or between sets of siblings. The following narratives illustrate second-marriage estate-planning issues

The unintended intestate distribution
Ted and Kate each had two children from previous marriages. Ted shredded the will that he had executed during his first marriage. Having paid his children's health-insurance premiums, college and graduate-school tuition and wedding expenses, Ted believed that he had provided more than enough for his two children to get a good start. He wanted to leave all his assets to Kate. He did not want to spend money on an estate-planning lawyer's fees, especially after paying a fortune to his (and his former wife's) divorce lawyers. Ted executed a will form from the Internet, leaving everything to Kate. He died the next day. Ted's life-insurance policy, a nonprobate asset, was payable immediately to Kate, who was named as beneficiary. Kate then tried to probate Ted's will, but the clerk of court rejected it for failure to comply with state law. As a result, North Carolina intestate-succession law determined the disposition of Ted's probate estate. A portion of his probate estate passed to his children instead of Kate. Suppose Ted had executed a valid will that left his assets to his children. Absent a valid waiver, Kate would have the right - known as the right of elective share - to claim a portion of Ted's assets.

Proper estate planning results in the fulfillment of one's intent regarding post-death distribution of assets. In a second marriage, both parties should, at a minimum, execute basic estate-planning documents such as wills, powers of attorney, health-care powers of attorney, living wills and HIPAA authorizations.

The retirement account with no beneficiary
Mary, a surgeon, had three adult children from a previous marriage. Her husband, Tom, had a child from a previous marriage. Mary had $3 million in her practice's retirement plan. She wanted it to be divided among Tom and her three children (with Tom's formal consent as required by federal law), but she was too busy to complete the plan's beneficiary-designation form. When Mary died, her failure to complete the form resulted in the payment of a lump-sum death benefit to Tom under the plan's default death beneficiary provisions. Tom rolled it over into his own IRA, which named his child as sole beneficiary. When Tom died the next year, Mary's three children received nothing.

Suppose Mary had named Tom as beneficiary of her retirement-plan account, trusting him to name her three children as beneficiaries of Tom's rollover IRA. After Mary's death, her children began to treat Tom horribly because he kept the rifle collection that had been in Mary's family for generations. Moreover, they made his life miserable by challenging every principal distribution to Tom from the marital trust that Mary had set up as part of her estate plan. Fed up, Tom decided to name his own child as beneficiary of his rollover IRA, which still contained most of the death benefit previously rolled over. Upon Tom's death, contrary to Mary's expressed wishes, Tom's child inherited Tom's rollover IRA. Mary's children received nothing. Once a surviving spouse rolls over a deceased participant's retirement benefit into the survivor's IRA, the surviving spouse can pick anyone as beneficiary. The lesson is to make sure retirement-plan and IRA beneficiary-designation forms are completed properly and monitored. In general, if a tax-qualified retirement plan participant wants to name a nonspouse as beneficiary, federal law requires the participant to obtain the spouse's formal consent. Most states, including North Carolina, do not require an IRA owner to obtain the spouse's consent to name a nonspouse as beneficiary.

The family beach cottage
Charles owned a beach cottage that he and his wife, Helen, had enjoyed for 40 years before she died of cancer. They had two children who grew up going to the cottage. His second wife, Liz, also had two children. Both avid golfers, Charles and Liz decided to renovate and move into the cottage. They retitled it from Charles' name alone to Charles and Liz as husband and wife. When he died, ownership passed to her. Liz, who owned a mountain home, considered giving the beach cottage to Charles' children but did not because of federal and state gift-tax consequences. After his death, Liz never updated her will to leave the cottage to his children. Her will left her assets to her children. The lesson is to pay attention to how assets are titled. A will does not control the disposition of assets titled with a right of survivorship.

Unsuccessful business succession
The business that Tony started in 1978 was worth $4 million when he died in 2006. Tony's daughter from his first marriage, Lynn, was involved in the business and owned 10% of it. Tony's second wife, Angela, was not involved in the business. Tony, who owned 90% of the company, believed that Lynn and Angela got along and could work everything out after his death. His will left all his company stock to a marital trust, income from which was paid to Angela. The residuary, undeveloped property worth $2 million, went to Lynn. The company shareholder agreement gave Lynn the right to buy stock from the trust at book value upon Tony's death. The estate-tax return filed by Tony's estate claimed the marital deduction for the stock that passed to the trust. The IRS denied it because the shareholder agreement allowed the sale of stock at a discount to a nonspouse. The denial caused a substantial federal estate-tax liability. Tony's will directed that any estate taxes be paid out of the residuary. Lynn had to sell the land to pay taxes that would not be due had the stock qualified for the deduction. None of the estate-tax liability was payable out of Angela's share of Tony's estate. Unintended consequences can arise if the estate plan does not coordinate with the business-succession plan. When a business is an asset in a second marriage, spouses should read and understand, in addition to estate-planning documents, any shareholder, partnership or other agreement that governs the disposition of shares or interests upon death.

Preventive planning
Estate disputes can occur in any family, but the risk is greater in a second marriage. Estate planning in a second marriage prevents the diversion of assets from loved ones to litigation or the IRS. And the benefits of peace of mind and family harmony are immeasurable.