Many couples create revocable living trusts to avoid probate and save inheritance taxes. They assume that upon the death of the first spouse (deceased spouse), the surviving spouse will have full control over the couple’s assets in the revocable living trust as if both spouses were living. The death of the deceased spouse is often the first time a survivor spouse discovers that he or she has more burden but less control over the assets, in complete contravention to the surviving spouse’s assumptions and initial understanding about terms of the revocable living trust.
Common Terms In Revocable Living Trusts That May Not Be Consistent With Your Wishes
- Assets Are Cut In Half. Revocable living trusts have disadvantages that become problems for those who are uninformed about the effects of the terms in the trust. Many revocable living trusts require the couple’s community assets, including the home, to be divided equally between husband and wife upon the first spouse’s death (deceased spouse). Thus, the surviving spouse only has control of his or her 50% of the home and other assets in the trust. The other 50% of the assets belong to the deceased spouse and are transferred to a subtrust, commonly known as deceased spouse’s bypass trust or credit shelter trust, created upon the deceased spouse’s death as required by the couple’s revocable living trust.
- Children Have Power Over Surviving Spouse. Another common term in the trust is that upon the death of a spouse, the couple’s children (remainder beneficiaries) would inherit the deceased spouse’s assets after the death of the surviving spouse. The surviving spouse, however, has limited control over the deceased spouse’s 50% of the couple’s assets and is burdened with being accountable to the children, the remainder beneficiaries, over the management of the deceased spouse’s assets. The children, therefore, are given the rights to sue the surviving spouse over the management of the couple’s assets, particularly the deceased’s spouse share.
- Surviving Spouse’s Loss Of Control To 50% Of The Couple’s Assets. The restrictions on the surviving spouse’s control over the deceased spouse’s 50% of the couple’s assets can be problematic when the children, who are the remainder beneficiaries, are not cooperative when the surviving spouse needs to use the deceased spouse’s assets. Refinancing or selling the home cannot be accomplished if one of the children objects and files a lawsuit to stop or stall the process. Moreover, one of the children may file a lawsuit to compel the trustee of the deceased spouse’s subtrust to sell the couple’s home.
A surviving spouse who wants to change the deceased spouse’s subtrust cannot do so without a court order as another common term in most trusts prohibits the deceased spouse’s subtrust from being changed or revoked unilaterally by the surviving spouse or anyone.
Surviving Spouse Trying To Resume Control Over All Of The Couple’s Assets After Death Of A Spouse
A court order is required if the surviving spouse wants to change the terms of the deceased spouse’s subtrust to resume full control of the couple’s assets. Going to court to change the deceased spouse’s subtrust is costly and time consuming. Furthermore, the children may object to changing the deceased spouse’s subtrust. This results in conflicts between the surviving spouse and the children. Advanced planning is the most cost effective remedy to preventing family conflicts and surprises.
Advanced Planning For Elder Care And Inheritance With A Team Of Professionals
Planning for elder care and inheritance is often delayed as it is uncomfortable to think and start a conversation about death and giving up control at old age. Once the conversation begins, apprehension about triggering a family conflict is another roadblock to creating a plan. Moreover, decision-making is paralyzed for fear of making the wrong decisions.
The planning process is less intimidating and stressful and more likely to be successful when the family works with a team of collaborative professionals. For further information on collaborative practice, review explanation of Tran Sood Law Firm’s mediation and collaboration services and blog article Use Collaborative Practice To Prevent Elder Care And Financial Abuse.