In the past few blogs I have been focussing on circumstances which may mean your estate and Will planning requires some added attention. In my blog from March 30, 2011 I listed some of those circumstances. The one I’m focussing on today happens to be one that is prevalent in about 50% or more of all family circumstances. It involves the situation of being in a second relationship coupled with the blended family. This isn’t the “Leave it to Beaver” family. Rather, it’s the family in the image of “The Brady Bunch”.
The difficulty with the Brady Bunch situation is the number of conflicting factors that need to be addressed. Those conflicting factors include:
- the second spouse, who may be seen by children from the prior relationship as the instigator of the breakdown in the former relationship,
- the second relationship may be impacted by the “age gap”. This is the situation where the second spouse is closer in age to the children from the prior relationship such that trying to provide financially for both at the same time may be a challenge,
- there may be children from both the first and the second relationship,
- there may be an “age gap” between the children of the first relationship and those from the second. This “age gap” will also present challenges in terms of ensuring sufficient funds are available to support the younger group of children in the same manner the older group was supported. This may cause resentment among the older group, and
- even where there are no children from the second relationship but one or both of the spouses have children from their prior relationship, the spouses will typically want to provide for their second spouse, will also wanting to ensure that at the end of the day, their own children (of their prior relationship) acquire their property.
Whether all of the goals can be achieved will clearly depend upon the assets each of the spouses has available. While there may be several tools in the estate planner’s toolbox to address the conflicting interests, such as life insurance, one tool that is often employed is a trust for the benefit of the surviving spouse.
A trust is an arrangement whereby one or more persons (called the trustee(s)) holds legal title to property for the benefit of other persons (called the beneficiaries). In this case, the spouse would be the sole beneficiary while s/he was living. The benefit of a trust is that someone else can be given the authority to manage and control property on behalf of and for the benefit of the surviving spouse, with the assets ultimately devolving to the children on the spouse’s death.
There are several points to consider when using a spousal trust. They are:
- who will be the trustee(s). Generally the spouse should not be the sole trustee. This is primarily because of the obvious conflict in which the spouse will be since one of the purposes of the trust will be to preserve the property for children who will benefit on the spouse’s death. This may lead to two of more trustees being appointed;
- if there are two or more trustees, how will they make decisions. Without saying otherwise, the law would require the trustees to act jointly. This may not be practical;
- beware of the “age gap”. If the spouse and children of the prior relationship are about the same age, you should expect that the children will not benefit from the property. Rather, it will likely be the case that your grandchildren will benefit.
- lastly, a trust will add complexity to your estate plan. For instance, tax returns will need to be prepared and appropriate record keeping maintained. Depending upon who the trustees are, there may also be ongoing trustee fees to pay.
Notwithstanding these added considerations, a spousal trust is still a tool that is worth considering in the appropriate circumstances. Stay tuned on more news about Will planning.