This blog is part two of a three-part series where estate planning attorney Molly Carey discusses the three most common reasons to include a trust in your estate plan and the steps you should be taking today. Molly Carey, Esq. is licensed in the state of Florida.
Beyond the convenience of avoiding probate for your loved ones, a revocable living trust is a common solution if family dynamics exist that make you question whether the assets you leave behind will end up with those you want them to, often one’s children after a surviving spouse passes. It can also be a means of protection for your surviving spouse as he or she ages and becomes more susceptible to the influence of others, the result of which could mean the unintentional disinheritance of your children. A revocable living trust allows for the creativity and flexibility necessary to assert control over your assets well beyond your lifetime. The below set of questions, while not exhaustive, raise legitimate concerns that can be dispelled when planned for through utilization of a trust.
Does your spouse have children from a prior marriage? If so, do you worry that your spouse’s kids might end up with everything if he or she were given full control of your assets after your death? You are likely not alone in your concern. Pew Research Center reported in 2015 that approximately 16 % of children live in blended families, and that 40% of families have at least one partner who has had a child from a prior relationship. A “blended family” included households with a stepparent, stepsibling, or half-sibling.
Even if you do not have a blended family, has it crossed your mind that your spouse could be unwittingly influenced by a third party or re-marry in older age, and possibly, unintentionally, squander your children’s inheritance?
A trust with careful provisions in place will prevent both scenarios. For example, by directing a portion of assets upon death be distributed directly to or held in further trust for the sole benefit of your children, the possibility is eliminated that a surviving spouse changes the ultimate beneficiaries to his or her children from a prior marriage, or to a new spouse, after your death.
The Annals of Clinical Psychiatry published an article, “Dating and Remarriage over the First Two Years of Widowhood”, wherein it stated that approximately 20% of women and over 60% of men are involved in a new romance or are married within just over two years of being widowed. That is a surprising statistic! Couple that stat with the fact that medical advancements have increased the average lifespan to 79.11 years, and it becomes apparent that the risk exists one’s surviving spouse could become susceptible to another’s influence.
The good news is that a trust can be drafted with provisions in place that both provides for and protects your surviving spouse as she or he ages with increasing vulnerability. For example, one conventional method is to implement what is called a Qualified Terminable Interest Property Trust, or QTIP trust. This is a type of trust in which distributions are limited to trust income specifically earmarked for the benefit of the surviving spouse only. Upon death, the remaining trust principal is distributed to the designated beneficiaries, usually the grantors’ children. In this way, unfettered control of the trust is not passed to the surviving spouse.
Another means of safeguarding trust funds for one’s children is through the inclusion of a provision that modifies or eliminates a surviving spouse’s powers should remarriage occur absent a premarital agreement that protects the trust from diminution. For example, the trust terms could require a beneficiary agreed-upon co-trustee to act in conjunction with the surviving spouse should he or she remarry without a premarital agreement in place. This serves to prevent the surviving spouse from being influenced to deplete trust assets intended to be passed on to children.
Do you have a piece of family land that was always intended to stay in the family? Something you only want your children to have, and then their children, and so on?
A trust can direct distribution of this property such that it will only pass to your descendants, and your decedent's descendants, thereby removing any chance that the family land end up in your surviving spouse’s side of the family, or even in the hands of a child’s spouse, should your child untimely predecease their children (your grandchildren), or divorce. A type of inheritance, or dynasty trust, can continue until all funds are exhausted, or there are no more living descendants, now up to 1000 years! The Florida Legislature changed this period from 360 years when it amended the statutory rule against perpetuities in May 2022.
Speaking of a possible child’s divorce, have you thought about if your son’s or daughter’s spouse could end up with the nest egg you plan to leave them?
That’s a fair concern considering no one gets married thinking they will divorce, yet according to the American Psychological Association, a staggering 40 to 50% of first marriages end in divorce, with that rate jumping to 60 to 67% for second marriages. A well thought out trust with the necessary criteria will prevent such an outcome. By leaving your children’s inheritance in a trust that becomes irrevocable upon your death and select provisions in place, you can protect them against not only loss of those funds due to divorce, but also against possible future creditors and lawsuits.
Even when taking the unfortunate possibility of divorce, creditors, and lawsuits out of the equation, there is still the possibility that your child dies prematurely. The creation of a dynasty trust is a way to protect against your deceased child’s inheritance being used to support someone that would be a complete stranger, for instance your future step-grandchildren.
All the concerns raised above are great reasons to seek relief in the terms of a revocable living trust drafted to safeguard a lifetime’s worth of hard work, and to ensure your assets make it to their intended beneficiaries, out of the grasp of a new spouse, a stepchild, or even a child’s creditor when drafted correctly.
Stay tuned for the third common reason to include a revocable living trust in your estate plan.
Questions about your estate plan? Contact PadgettEP today to learn how we can help.