WALTEMATH LAW OFFICE

To Trust or Not to Trust

A client created a joint living trust with his wife before his wife’s death.  This was a second marriage for both of them so they wanted to ensure that their assets would go to the children of both of them upon their death.  The trust document indicated that upon the death of one of the spouses, two trusts would be set up, one for the surviving spouse and one for the children of both spouses.  The trusts were standard trusts.  The primary purpose of both trusts were to maintain the surviving spouse.  The surviving spouse was entitled to all income from her trust and she could invade the principal.  She was entitled to the same from the family trust except she could only use the money for her education, health, maintenance, and support.  You may think there are fairly broad standards and that all the money was virtually his, but as you will see later, this is not true.

After the death of the first spouse, the surviving spouse was devastated.  His wife had a prolonged illness and many of their resources were depleted.  The only assets remaining to fund the trust were the family home and a bank account. After paying for his wife’s last expenses, which included medical costs, funeral and burial costs there was not much money left in the trust bank account.  The surviving spouse needed more money to live on. His only income was social security and a small pension.  

He went to the bank to obtain a reverse mortgage and he was denied.  The bank could not give a second mortgage to the surviving spouse because of the trust provisions.  The trust document said that at the death of the first spouse, the assets were to be divided into two trusts, a trust for the surviving spouse and a trust for the family.  The part owned by the family could not be changed or modified by the surviving spouse, it was irrevocable. 

The surviving spouse had to get permission from the deceased spouse’s children to terminate the trust so that he could obtain a reverse mortgage on the family home and the spouse’s children would not consent.  They felt he was spending too much money.  He had made some major improvements to the house after the death of his spouse.  He had taken a vacation after the death of his spouse.  The decease spouse’s children felt that they were owed their inheritance

This client should not have created a joint living trust.  They did not have sufficient assets to maintain the surviving spouse.  There were not enough assets to divide everything into two trusts.