- Written by Jonathan J. David Jonathan J. David
Dear Jonathan: I am a 70-year-old widower who is newly remarried. It is also a second marriage for my wife, and we each have two children from our first marriages.
We have been having discussions about putting an estate plan together. With the exception of our home and two bank accounts that we jointly own, we have maintained separate ownership of the separate assets we brought into our marriage.
We agree that after the first one of us dies, the deceased spouse’s assets should be made available to the surviving spouse, to help with his or her care, if necessary.
When the surviving spouse passes away, we want what is left of our combined assets to be divided equally among our four children. Can we accomplish that with a joint trust, or do we each have to prepare our own trust, which we are trying to avoid due to the added complexity and cost?
Jonathan says: The question you pose is fairly common in second marriages. Let’s review your options and the potential consequences of exercising any of those options:
1. You and your wife could prepare a joint trust and transfer your joint assets, as well as your separately owned assets, to that trust rather than prepare separate trusts.
This would be less complicated and cost less because there would only be one trust, not two. The assets in the joint trust would be available for the surviving spouse’s use and could provide that upon his or her death, the remaining assets would be divided between your four children in equal shares.
The problem, however, is that because a joint trust remains revocable until the death of the surviving spouse, the surviving spouse could revise the terms of that trust and redirect all of the trust assets at his or her death to his or her own children.
2. Instead of a joint trust, you could leave your home and bank accounts in joint names and create separate trusts to hold your separately owned assets.
The jointly owned assets would belong to the survivor of the two of you. Each separate trust could name the other spouse and your four children as the beneficiaries.
Although more costly and complicated than creating a joint trust, separate trusts will protect each of your children because the surviving spouse, although a beneficiary, has no control over the assets of the decedent spouse’s trust and would not be able to revise the terms of that trust or redirect the trust assets to the surviving spouse’s children.
Instead, upon the surviving spouse’s death, the remaining trust assets would be distributed to your four children in equal shares.
Keep in mind, however, that the surviving spouse could change the terms of his or her own trust and make sure that only his or her children receive the assets of that trust upon the surviving spouse’s death.
3. In addition to each of you preparing separate trusts, rather than owning your home and bank accounts in joint names, you could prepare a joint trust to hold those assets.
Although this adds an additional layer of complexity and cost, the benefit of having a joint trust own the jointly owned assets is that those assets would not be subject to probate upon the death of the last to die of the two of you.
4. Finally, you could just create a joint trust and dispense with creating separate trusts. You would mutually decide what assets to place in that joint trust, understanding that the surviving spouse would control those assets and could redirect them to his or her own children upon death.
To make sure that each of your children receives a portion of each of your estates, you could each name your own children as the beneficiaries of certain of your separate assets that remain outside of the trust. Those assets might include a life insurance policy or policies, certain bank and/or investment accounts, certificates of deposit, or perhaps even retirement accounts.
Although your children would not necessarily end up being equal beneficiaries, by taking this approach, you will at least guarantee they will be partial beneficiaries of each of your estates, regardless of what happens to the assets in the joint trust upon the surviving spouse’s death.
I recommend the two of you consult with an estate planning attorney, who can discuss this with you in more detail and help you prepare an estate plan that protects both of you, as well as your respective children. Good luck.
Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, P.C., 1700 E. Beltline N.E., Grand Rapids, MI 49525.