San Antonio Express-News
Copyright 2009, Paul Premack
August 4, 2009

 Living Trust useful in Second Marriage

Dear Mr. Premack: I am 74 and in a second marriage. More than likely I will die before my wife who is 67. Can I leave my property to my two children when I die and they in turn give my wife a life estate in that property till she dies or remarries? – DF

Because this is a second marriage, you are only seeing the tip of the legal iceberg to which you’ve exposed your family. Before you can make an estate plan that will accomplish your goals, you must address community property issues and homestead rights.

Did you know that all of the interest earned on your bank accounts since the day you got married belong ½ to your wife, even if the bank accounts are in your name only? You cannot dispose of your wife’s share in that property, so you must find a way to avoid a conflict over the split interest.

Did you know that your wife already has the legal right to occupy your home for the rest of her life, even if you leave it to your children? In some ways, the occupancy right resembles the life estate you hope your kids would grant to your wife. Essentially, your idea to leave the assets to your kids and then hope they will set up a life estate for your wife is not a practical or a legally enforceable idea. Why? First, they might simply decide not to honor your wishes after you die. Second, even if they do honor your wishes, life estate by definition continues until your second wife dies; it could not legally cease if she remarries.

A better approach would involve two steps. Step one is for you and your wife to enter into a spousal partition agreement. It clarifies your rights in existing assets by listing items owned solely by you as your separate property, and items owned solely by your wife as her separate property. The agreement states that past and future interest earned on separate assets remains separate instead of becoming community property. Also, the agreement can and should define occupancy rights for your home by including a waiver of legal homestead rights by your spouse.

Once that is complete, step two is the creation of a living trust agreement for your assets. Your wife can prepare a living trust also, but depending on her goals may need only a Last Will and Testament. Your goals, however, would be well met with a living trust.

The trust would state that it owns your separate property assets as defined in the spousal partition agreement. You would be listed as the initial trustee, and you would be listed as the initial beneficiary of the trust. That would allow you to continue to manage the assets held in the trust, and would allow you to disburse assets for the routine expenses incurred by you and your wife in your daily lives. 

If you become disabled, the trust can continue to operate for your benefit. You would select an alternate trustee (perhaps one of your children) who must follow the rules set out in the trust regarding disbursement of funds. Those rules could give that trustee some discretion, but it would all be done within limits set by you in the trust.

The trust would be written so that after your death, certain benefits continue for your second wife. Unlike your idea of giving the asset straight to the kids and counting on them to grant benefits to your wife, the trust is your direct grant of benefits to her. Although she would never own the home, she would be allowed to live there subject to conditions set by you for her continued occupancy. For instance, you could require that she pay the taxes and insurance on the property. And you could, in a legal and enforceable way, terminate her occupancy if she decides to remarry.

Additionally, the trust would define what happens when your second wife’s benefits end (by her death or by remarriage). At that point, the trust could be terminated and the remaining assets would be distributed to your children. They become unrestricted owners, so they can sell or keep the property as they desire. Your goal of providing benefits to your second wife was already fulfilled, and now your goal of leaving the assets to your children is met without imposing further restrictions on them.