Assets do not always go 100% to the spouse free of trust. How do you plan if you want to (1) leave assets to someone other than your spouse even if they survive you, and (2) leave assets to your spouse “in trust” if they survive you?
The first scenario is usually a situation where the husband and wife are wealthy enough to know that the survivor will not need all the assets, and they want to help the kids sooner rather than later.
Let’s assume Johnny and Moira have two children, David and Alexis. They want to help David and Alexis sooner rather than later, and they know they will not need to have all their assets when one passes. So, what can and should they do?
First make sure assets are not all owned jointly with right of survivorship.
Second, create a trust and direct that on the first death, some assets (retirement or non-retirement assets) go to the children or to a trust for their benefit.
Third, make sure an attorney is advising you as to titling on assets, and designation on retirement accounts and life insurance. Care needs to be taken to ensure all works as intended. Sound advice from a lawyer will ensure the proper care is taken.
Johnny and Moira could structure their affairs so that, on first death, some or all goes into a trust for David and Alexis, and then, when David and Alexis pass, on to their children. These are often called “bloodline” trusts because the assets stay in the bloodline, free from the claims of most creditors, and not exposed to estate tax.
Let’s say David has a child, Luke, who is autistic. We would want to ensure that if assets flow down to Luke, his share will be in a special needs trust so it will not defeat his eligibility for government benefits.
The second scenario is a situation where one spouse believes the other spouse might have problems handling and managing the finances. Let’s assume Mike and Carol have two children, Greg and Marcia.
Mike is concerned that Carol will not be able to effectively manage the property and financial affairs if he passes first. What should Mike do?
He should create a revocable trust and direct on his passing that assets will go into a trust for the benefit of Carol if he predeceases. He could name Greg or Marcia as the trustee for Carol. When she later passes, the trust could direct assets to go into trust for the kids.
Again, care needs to be taken to ensure all works as intended. Sound advice from a lawyer will ensure the proper care is taken. Re-titling of assets and updating beneficiary designations might be needed.
There are many iterations and possibilities. In every case, it is advisable to seek the counsel of a lawyer who can work through your options with you so you can structure the best plan for your family and your peace of mind.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com