The Joint Trust in a Second Marriage

This one goes out to all the people that are in a second marriages. You and your spouse each have children from prior marriages. What are the estate planning considerations and implications in this common situation?

Most often, the couple names all of their respective children as equal beneficiaries in the trust instrument. One concern is that a surviving spouse will take actions following the death of the other spouse to reduce or eliminate the trust shares of the deceased spouse's children. The language of the trust instrument is critcal in such situations.

A primary consideration is whether the trust becomes irrevocable upon the death of the first spouse. Usually, at the death of the first spouse, the trust cannot be amended or revoked.

We see cases where a surviving spouse attempts to restate the trust, favoring that surviving spouse's children. Other times, the "reformation" takes the form of distributing assets out of the trust and into select beneficiaries' hands. Sometimes, litigation ensues when the decedent spouse's children are completely disinherited.

In such cases, the primary inquiry by the probate court is to determine the intent of the parties as reflected in the trust instrument. A common trust provision will allow the surviving spouse to distribute trust assets within the discretion of the surviving spouse. Sometimes, however, this right to withdraw trust assets conflicts with the irrevocability provision.

When we advise second marriage clients seeking to make joint trust, we ascertain and confirm in the trust instrument the core intentions of the settlors.

Frequently, at the time the trust is executed, the settlors desire that the children of one spouse will not be posthumously disinherited by the surviving spouse. Our analysis in this regard is informed by a recent Court of Appeals decision that held that a surviving spouse "withdraw clause", by itself, does not grant a surviving spouse unlimited authority to withdraw all trust assets and essentially restructure the trust.

This recent appellate decision held that when the surviving spouse removed all of the trust assets, and subsequently conveyed the assets to one of his children, that manuever was improper as it was not for "the use and benefit of the surviving grantor." The conduct of the surviving spouse was held to be beyond the authority granted him in the joint trust.

Over the years of advising clients in their estate planning, we have developed some "best practices" in this regard. The most important principle is to thoroughly discuss the intent of the spouses in a second marriage, including common eventualities using such an instrument.

There are tools that married couples can use outside of the joint trust. For example, designating beneficiaries on brokerage accounts is popular. Also, specific assets can be jointly title such as bank or investment accounts to guarantee that a spouse's children will receive their intended inheritance at the time of their parent's death. We see this maneuver when one of the spouses comes into a separate inheritance and elects to fund the inheritance outside the joint trust.

We can help. If you are in a second marriage and need an estate plan, contact our office to schedule a free consultation.