Many lawyers proclaim to have remarriage protection in their estate planning documents, but few are worthy of this claim. For most lawyers, having remarriage protection means removing a spouse’s right to benefit from a trust in the event the spouse remarries. Although this is a good start, it is wholly insufficient in determining the expansive abilities that one can have regarding remarriage protections.
So let’s look at the key points. Typically, clients use trusts 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.
- 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 this 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 Lawyers with Purpose Client-Centered Software (LWP-CCS) ensures remarriage protection at all three levels. Let’s examine each and how they apply to remarriage protection.
First 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, we see lawyers name just 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 is 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 has assets that are still available as provided by the original planning.
Another critical issue in remarriage planning is the definition of remarriage. Most trusts define remarriage as however remarriage is legal in the jurisdiction. This is another mistake. In today’s day and age, no one gets married anymore, but not getting married does not mean that a new “significant other” does not have significant influence over the surviving spouse. That’s why Lawyers with Purpose’s Client-Centered Software includes default remarriage language that identifies remarriage as any marriage legal in the jurisdiction or any relationship that results in cohabitation for one night. The software also allows attorneys to custom-tailor the definition of remarriage any way they choose. 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 in the LWP-CCS software.
In addition, a deceased spouse’s trust can allow 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 LWP-CCS remarriage protection software 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. Interestingly, the Lawyers with Purpose software allows not only the appointment of all these powers to a spouse, it also allows you as the attorney to cherry pick which powers, or any combination of them, are altered upon the remarriage of a spouse as you wish to create them with the client.
Again, this is what we call trust drafting. Too many times we have lawyers get comfortable and lazy with the simple provisions most would call “remarriage protection.” That’s why at Lawyers with Purpose our software supports your ability to be purposeful to your client’s plan.
If you want to learn more about what it means to be a Lawyers With Purpose member, consider joining us for THE estate and elder law event not to be missed this June in San Diego. You can see the full agenda here: http://retreat.lawyerswithpurpose.com/agenda/. If you aren't a member contact Molly Hall at mhall@lawyerswithpurpose.com to find out more information about how you can reserve your spot today. Early bird pricing ends Friday, May 13th so register today!
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Dave Zumpano, Co-founder – Lawyers With Purpose
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