Trust v. Trust

I met with some giddy newlyweds last week.  They were about 70 years old and really they define the word GIDDY!  As the kids would say, “OMG!”  We met to discuss their estate planning needs. Though not worth millions they do have assets that they have worked hard to gather.  Also, they each have kids from previous marriages.  Should they get a trust or should they just trust each other!?

I suppose being an attorney since 1994 has caused me to be a little jaded. During that time I have seen countless situations where the surviving spouse (most typically in a second marriage situation) decides to change things in favor of their kids after their spouse dies. That is, let’s say they have a trust that is totally revocable (or amendable) by the surviving spouse. This means the surviving spouse can change everything. The original plan said that the assets would be distributed 50% to her kids and 50% to his kids after the second death… however, things change.

The reasons for the change of heart are endless.  People tend to favor their kids over all other people in the world, there is often stress with step kids, people feel less affinity for their step kids if they don’t talk to them much after the kid’s parent dies, kids can have undue influence on their parents, and the list goes on and on.  In the end it IS about MONEY and money can make people do strange things!

So clients are giving a choice… trust or trust.  That is, should you set up a trust with protections for your kids or should you trust your new spouse!? My clients last week were common of many I have met with over the years. About 70 years old, they each had assets from before marriage, they each had kids from a previous marriage and they wanted to take care of each other first and foremost.

The options are endless of course. However, let’s pair it down to the main options:

1) A totally irrevocable trust- that is a trust that can not be changed at all after the first spouse dies.

2) An A/B  irrevocable trust – that is a trust that becomes partially irrevocable after the first death.

3) A totally revocable estate plan – that is to just TRUST the surviving spouse to do the right thing.

With the clients last week it was mainly between 2 and 3. The house was the main issue.  I suggested a trust that would become partially irrevocable at the first death to provide some protection to the children of the first spouse to die. That trust would give the surviving spouse the complete ability to live in the house forever but at their death 1/2 would go back to the kids of the predeceased spouse.

They did not like the complexity or the idea of spending money on a trust. I told them another option was to create a joint deed (actually “community property with the right of survivorship”) so that the house would easily transfer to the surviving spouse. I explained that the surviving spouse would then own the house and they could do anything they wanted with it! I said they each could write wills dividing the assets 50/50 after they were both deceased but those wills could be changed at any time.

They looked each other in the eye, smiled and with a Viagra induced gaze they said, “we trust each other.”  They decided to do nothing and just trust each other!

Of course we all want to think that option 3 is the best. We all want to think we can trust our surviving spouse. We all want to think people are good in this world. However, time and time again we are reminded that simply trusting each other doesn’t always work out.

Should they do something different? Of course my lawyer brain says yes but I can’t force them to do anything.  Plus, I truly hope their plan of trust works out and that the surviving spouse does do the right thing.  I truly hope that the surviving spouse does give the pre-deceased spouse’s kids the personal items of their parent. I hope that the surviving spouse divides up the house, or proceeds from a sale, after their death. I am a dreamer!

The reality is simply that death and money often combust into a wicked situation!  Though the questions and answers are not easy a well drafted estate plan can provide for each spouse and insure that your wishes are followed after both of you have died. Again, let me repeat the questions and answers are not easy so be prepared!

Call me if you want to set up a solid estate plan to take care of your spouse AND your kids!  -John

Reviewing Your Estate Plan

The percentage of people that actually have a completed estate plan is pretty low.  I don’t know the exact number but it’s well under 50% and could easily be under 20%.  Of those 20-50% of the people who were organized enough to get your estate plan done in the first place should you review it at some point?

Well, the way it often goes is the client signs the estate plan, puts it away and forgets about it. Some people remember to put later acquired  assets into their trust but certainly not the majority of people. However, how many people have a document sitting on a shelf, collecting dust, that is simply not accurate anymore.  It may be inaccurate due to family change, asset change or changes in the law. The key is knowing when to talk to your estate planning attorney and, if in doubt, set an appointment to review things!

Times in life when you should review your estate plan:

– Changes in the law;

– New Marriage;

– Divorce;

– Kids or grandkids are born;

– Assets change drastically (up or down);

– Serious illness;

– Change in family business plans;

– Retirement;

– Change of jobs;

– Financial irresponsibility of a child;

and the list goes on and on.

Some of these can be more major problems than others. Getting married is probably one of the biggest. Let’s say you have a will or trust that leaves 100% of your assets to your children. Let’s say you get re-married to a lovely man. He is warm and sweet, loves your kids, puts a roof over your head and on and on the list goes of great attributes that this man has.  Then you die. Do your kids still get 100% of your will or trust?  Let’s say it was 100% “separate property” that you acquired years before marriage and you never co-mingled the assets with community property.  Still? Do your kids still get 100% of the assets?  What if you died on the honeymoon?  Still?  Do you still think your kids will get 100% of your assets?

The laws in California are very clear that your husband is a “pretermitted spouse.”  Simply put this means your hubbie can make a claim against your estate for his intestate share as if you had no will or trust!  If you have 2 or more kids that means he could make a claim for 33% of YOUR assets and if you only have 1 child he could go after HALF.  Let me say that again… HALF!

On the other hand you could revise your will and trust just before marriage to say you are contemplating marriage and still intend to give your children 100% of the assets.  Then you would do an amendment immediately after marrage stating you are now married but you still wish to give all (or whatever amount you decide) to your children.  By preparing proper, legally binding, amendments to your estate plan you have reviewed your estate plan and avoided the Gov-enator changing your estate plan for you!

This is just an example. I have more!

I encourage you to contact your estate planning attorney to review your estate plan. If you don’t have an attorney call me!


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10.0John Bernard Palley
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