It’s the second marriage for both you and your new spouse and so far it’s been a beautiful life. Despite your happiness, the two of you are mindful that life can suddenly take a turn for the worse and have started drawing up new wills and an estate plan. However, things are a little complicated… both of you brought separate assets into the marriage and your spouse has two adult children from a previous marriage. After several heart-to-hearts, you decide on the following:
- Upon the first to die, your separate property will be put in a trust benefiting the survivor for life;
- The ultimate disposition upon the second to die, will be their respective heirs; and
- Each spouse will be the trustee of the resulting trust.
All in all, you think you’ve put together a reasonable plan that will benefit respective heirs and not be subject to subsequent marriages and families. Since you anticipate having another 20 to 30 years together, you haven’t really thought about what it would be like if something happens now. But you should.
Let’s say the unthinkable occurs, your spouse passes away unexpectedly. As you and your spouse intended, the estate planning attorney immediately transfers the assets into the trust, you become trustee, the assets are invested, and the income generated by the trust is set up to be annually distributed to your bank account. The estate planning attorney then sends a notice of the transfer to your spouse’s adult children, who turn out to be completely surprised and somewhat upset by this new financial arrangement. Like many married couples, you didn’t invite the children to your private talks about death and inheritance.
As the surviving spouse and trustee, you now have to annually report to the children the value of the assets at the beginning and end of each year, a statement of receipts and disbursements, your compensation (if any), and the agents you hired. Almost immediately, you will find out how awkward it feels to report your spouse’s previously private financial information to the children. It truly feels like you are breaking a confidence by exposing the private life you shared with your spouse. Further, if you don’t get along with the children, their scrutiny and questions can morph this awkwardness into outright hostility. Like a marriage of sorts, you and the children will be forever tied to the trust and each other; for better or for worse, until death do you part.
When in this situation, perhaps a better solution is to appoint a corporate trustee. The best ones can answer the children’s financial questions; provide regular statements of account; make discretionary decisions regarding distributions from the trust principal; and most importantly of all, assure everyone that the portfolio is in safe hands. By delegating responsibility to a corporate trustee, you will have a much easier time continuing a friendly relationship with the children of your spouse and will have more freedom to deal with all the other difficult issues that arise when a spouse is lost. Eventually, you will find that life can be beautiful again… you will remain a part of your spouse’s family and share in their joys for what may be many more years to come.