Many lawyers proclaim to have remarriage protection in their estate planning documents, but few estate plans deal with these issues completely. A traditional trust that deals with remarriage will include language that permits or limits the surviving spouse rights to benefit in the event of future marriage. While this may seem like a good way of dealing with this potential conflict, it is often insufficient to protect the surviving spouse and kids from the numerous methods that can be used to gun a trust prior to the marriage. In the end, your kids are the ones that loose out.
So let’s look at the key points of remarriage protection. Typically, one of the reasons clients use trusts is to benefit their spouse. Outright conveyances to spouses are common, but they do not provide any asset protection or remarriage protection. To ensure that assets are protected in a remarriage, one must plan appropriately in four core areas for remarriage protection.
• Beneficial interest of the spouse
• The definition of “remarriage”
• Powers of appointment to the spouse
• Removal powers to the spouse
When designating trusts for clients of long-term marriages, most want to ensure that the intentions of the couple are carried out after the death of the first spouse, and are not adversely influenced. Although remarriage protection is a common goal, it could be derailed when a new relationship enters the picture after the death of the first spouse. The goals and intentions of the surviving spouse are often altered significantly due to the fear of having lost their spouse and/or the introduction of a new relationship that can influence them. To ensure that the deceased spouse’s intentions are carried out, the trust documents must address remarriage protection at all four levels.
The first problem in most remarriage protection is the spouse’s right to a beneficial interest. The surviving spouse often has a right to principle and/or income from the deceased spouse’s trust. That interest can come in the form of a family-type trust that benefits the spouse’s kids/non-family, or a common trust with other beneficiaries. So often, documents that just name the spouse as the beneficiary of the family trust. Although this protects the spouse, it also unduly restricts them. A spouse who wants to benefit a child and use assets from the deceased spouse’s trust often has to take the distribution and then give it to the child. Instead, it can be more practical to include the children and other descendants as benefits of the principal and income to a surviving spouse. This allows the surviving spouse, as trustee, to distribute or “sprinkle” the income or principal as they determine to accomplish the goals of the family. In contrast, if the surviving spouse gets unduly influenced by a new relationship, then one must be able to restrict that spouse’s right to income and principal under the deceased spouse’s trust. Remember, the surviving spouse generally has assets that are still available as provided by the original planning.
The second critical issue in remarriage protection is the definition of remarriage. Most trusts define remarriage as however remarriage is legal in the jurisdiction. This can be another mistake. In today’s day and age, many people do not get married, but not getting married does not mean that a new “significant other” does not have significant influence over the surviving spouse. That’s why we can include remarriage language that identifies remarriage as any marriage legal in the jurisdiction or any relationship that results in cohabitation for one night. We can custom-tailor the definition of remarriage any way a client chooses. What’s critically important is what remarriage protections are triggered when the remarriage definition is met, first, upon remarriage under the definition, the ability to access principal or income can be restricted.
The third problem with most remarriage protection a deceased spouse’s trust can permit a spouse certain powers of appointment to ensure that the couple’s goals are continued after the death of the first spouse. When there is an outside influence or a remarriage (as defined by you), then you may also begin to restrict the surviving spouse’s power of appointment to ensure that the children are not penalized for failing to agree with the surviving spouse, and the power to make distributions that would go against the deceased spouse’s intentions.
Perhaps the most significant power that can be removed in the remarriage protection sections is the ability to remove a surviving spouse’s removal powers. Removal powers include the surviving spouse’s ability to remove a trustee and/or trust protector of the deceased spouse’s trust. Allowing removal powers after the influence of a new third party can adversely affect children or other beneficiaries who are acting as co-trustees, or trust protectors who were independent and in place to ensure the preservation of the deceased grantor’s intentions.
These are some of the ways that a customized trust can provide far greater protection for our clients. If you are interested in adding remarriage protection, or asset protection to your estate plan or creating a new family estate or asset protection plan, please contact the Law Office of David M. Goldman to begin the process.