Unlike King Louis, we do not foresee a flood of problems and a revolution coming after our demise. But all too often we inadvertently create the conditions which can lead to problems and a major change in family dynamics the moment we become disabled or die. There is an excellent chance that we will become disabled. There is also a 100% chance that we will die. Most people (mistakenly) address death first.
Using Wills and Trusts for second marriages
Spouses commonly sign “sweetheart wills,” leaving everything to each other and, when the surviving spouse dies, to the children, usually in equal parts. We may even add that if a child has died, the property will go to that child’s children, if any, or, if none, to the child’s siblings. To most people, that sounds fair.
Will it work?
Is it fair?
With our increased life expectancies more and more of us are entering into late-life second marriages. If our Wills do not include a contract not to change them (in order to assure that the property does pass to our children), we must enter into a marital property agreement or face the possibility that the property will pass to the second spouse’s children.
What about property which passes outside the Will? Given changes in law and circumstances, contracting not to change the Wills may not always be a good idea. If transfer on death arrangements have not been made for the home and car, contracting not to change what property passes under the Will is probably not a good idea either.
How many elderly people think to have a formal marital property agreement, with each spouse represented by another lawyer, rather than informally agreeing between themselves? Without this, the legacy intended for one spouse’s children may go to pay for the other spouse’s care – or pass to that spouse’s children.
One way around this is to leave things to one another in trust with a power to decide who will receive the property once the surviving spouse dies. That kicks the can down the road and allows the surviving spouse to determine whether the children later have equal needs. It also allows her to decide who she likes best, if she has the ability to decide. If she does not, it may be the agent under her Durable Power of Attorney who decides. Most people name a child. Whatever that child decides, will it be perceived as fair? Will it be?
Another way is to leave things to one another in Qualified Terminable Interest Property Trusts (QTIPs) which state who receives the property when the surviving spouse dies. A gift tax return must be filed. A QTIP election must be filed with the Internal Revenue Service. Your Wills should require this.
Whether you use Wills or trusts to dispose of your property when you are gone, you can provide for life’s contingencies by incorporating “contingent trusts.” Every Will or trust instrument should provide that if a beneficiary is disabled, their legacy will pass to a special needs trust; that nothing will be distributed during a bankruptcy or divorce; and that the executor or trustee may determine that a beneficiary is unable to manage money (for example, due to alcohol or drug use) and hold that person’s legacy in trust for them until the situation changes.
Elder law attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.