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Estate Planning

Lessons from the Anna Nicole Smith Case

Nervous about your inheritance? Consider these do's and dont's. Rule number one: Get everything in writing.

The Supreme Court's unanimous ruling Monday in favor of Anna Nicole Smith's ability to continue fighting for a share of her late husband's vast estate holds some important lessons for average Americans of more modest means.

"If people would just take the time and make the effort to communicate in a legally binding manner what they want, a lot of these issues would never arise," says Martin Shenkman, an estate planning attorney from Teaneck, N.J., who notes that second marriages, particularly those that occur later in life, require special attention. "These lessons are not just for the wealthy," Shenkman adds.

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Smith, a former Playboy model, was 26 when she married 89-year-old Texas billionaire J. Howard Marshall in 1994. He died a year later. She has been fighting one of her late husband's sons in court for more than a decade over a fortune estimated at as much as $1.6 billion.

The Supreme Court justices did not decide how much money Smith would get, if any. Her victory just means that the case is thrown back to a lower court, where she can resume her claim. Smith -- who uses her real name, Vickie Lynn Marshall, in legal papers -- has yet to collect a dime.

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Can a spouse be disinherited?

Although the details of Smith's case are complicated, they raise some interesting issues for average Americans. First of all, how can a spouse be disinherited? In most states, that can't happen. The majority of states give a surviving spouse the right to claim a portion of the deceased spouse's estate-generally one third -- no matter what the will provides. These provisions kick in only if the survivor goes to court and claims the share allowed by law. Otherwise, the will is honored as written.

But in the nine community property states, including Texas where Smith filed her original case, there are different rules about what spouses own and can claim. Basically, each spouse automatically owns half of what either one acquired (except by gift or inheritance) during the marriage, unless the spouses have a written agreement to the contrary.

Smith maintains she is entitled to half of her late husband's estate based on his promise when she married him. But she has no written pre-nuptial agreement, and the bulk of his assets were held in a trust outside of his control, and therefore not available to share with Smith after his death. Smith contends that his son, Pierce Marshall, was instrumental in having his father's trust changed from a revocable to an irrevocable trust after her marriage in 1994.

Pierce, the sole beneficiary of the estate, maintains that his father prepared seven trusts and six wills and none of them named either Smith or his older brother, Howard III, as beneficiaries. So far, he has successfully defended his position.

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Repeat yourself

One way to ensure your wishes are carried out is to reconfirm your intentions over and over again, says Shenkman who outlines this and other strategies in his book Inherit More (John Wile & ySons, Inc., 2003), where he specifically refers to the Anna Nicole Smith and several other celebrity cases. For example, if you make a will giving a share of your estate to your new spouse, you should revise your will a few months later, reaffirming that intent regardless of whether you make changes to other parts of your will. Establishing a pattern will protect your new spouse after your death.

On the other hand, if you live in one of the many states that automatically grants a portion of your estate to your new spouse, and you want to protect your children's inheritance, Shenkman says you need to have your new spouse waive his or her "spousal election" rights. You can do that through a pre-nuptial agreement.

And when it comes to drawing up a pre-nup, he recommends that you do it well in advance of the wedding day, and each party should have his or her own lawyer so there is no question of coercion.

Keeping promises

So how do you provide for a later-in-life spouse who has brought joy to your golden years without leaving your kids out in the cold? One common strategy is to establish a QTIP (Qualified Terminable Interest Property) trust for the benefit of the new spouse. She can live on the income from the trust, and, after her death, the principal of the trust reverts to the family.

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Another strategy is to establish a life estate for the family home. Your children retain ownership of the property and contents, but your new spouse is allowed to live there for the rest of his or her life.

Put it in writing

"While the enormous costs and negative publicity in this high-profile case are really horrible, legal squabbling can have an even more tragic effect on smaller estates," says Shenkman, noting legal fees can squander an inheritance that might make the difference in whether grandchildren can afford to go to college.

The bottom line, he says, is "State clearly what you want done, establish a legally binding format such as a will or trust, and reinforce your intentions."