The concern you raise has been worrying families for many generations. When you enter into a long term partnership with a spouse, raise a family, work to create financial security and plan for the future, you hope those efforts and plans will be fulfilled even if you are the first to die. You hope that your long terms plans will be honored by your spouse even after your direct influence is gone.
Too often that hope is ignored or forgotten by the surviving spouse. The survivor’s need for companionship brings a new influence – a second spouse – into the mix. Society pressures us to honor the new marriage, which can turn into an abandonment of the commitments made during the first marriage. Conflicting goals arise: the survivor wants to care for the family made with the original spouse but also wants to support and care for the second spouse. Those conflicting goals can be handled with advance plans like these:
Testamentary Trust. The original spouses agree to make similar Wills, which state that upon the first death between them, the 50% of the assets owned by the decedent pass into an Irrevocable Trust for the benefit of the surviving spouse and, upon the survivor’s death, to the children or grandchildren. The Trust assets are protected; they are committed only to the care of the surviving spouse and are committed only to the after-death plan which both spouses deemed appropriate. The 50% of the assets which belong to the surviving spouse are not affected; they belong to the survivor and can be used in any way the survivor deems appropriate including redirecting then for the benefit of a second spouse.
Again, in an ideal world the surviving spouse will insist on a Prenuptial Agreement before remarrying. The Prenup maintains a separation between the assets from the first marriage, the assets of the new second spouse, and assets earned during the second marriage. It would not forbid the surviving spouse from voluntarily leaving the non-Trust half of the assets to the new second spouse, but would forbid the new second spouse from demanding to receive those assets.
Living Trust. The original spouses agree to place 100% of their assets into a Trust. While they are both alive and well, the Trust is controlled by them and is for their benefit. If they desire to change the Trust, they can do so by agreement. But the Trust contains a binding provision which renders the Trust irrevocable and non-amendable upon the death of the first spouse. Thus, 100% of the joint assets are committed to the care of the surviving spouse, and are committed to the after-death plan which both original spouses deemed appropriate (like leaving the assets to the children and grandchildren).
If the surviving spouse decides to remarry, the Trust’s assets are broadly protected. The survivor cannot redirect the assets for the care of or for inheritance by the new spouse. Ideally, the surviving spouse will also insist on a Prenuptial Agreement which declares that all income earned by both spouses in the new marriage remain separate property. The Prenup would eliminate the new spouse from making any claim against the Trust’s earnings during the new marriage.
Paul Premack is a Certified Elder Law Attorney in San Antonio. His firm has offices in Texas and Washington, and handles estate planning for all ages, probate law and business entity formation issues.
This column first appeared in the San Antonio Express-News (MySA.com) on September 8, 2014. Click here to read it at MySA.com.