AUGUST 20, 2012 VOLUME 19 NUMBER 32
Imagine this scenario: you and your spouse have been married for thirty years, and it is a second marriage for both of you. Each of you brought children to the marriage (your two and your spouse’s three), and all five kids were raised together from their teens as if they were each the child of both of you. You want to get your estate planning done, and you want to make sure that (a) when one of you dies, everything will go to the other, and (b) when the second of you dies — whichever that is and however long he or she survives the first to die — everything gets divided equally between the five children. Can you accomplish this?
The short answer is “yes.” But there are some issues to be considered here. One of those issues is the subject of today’s installment of Elder Law Issues: contracts to make (or not to make, or not to change) a will.
First the legal details. The principle is actually fairly straightforward. Arizona Revised Statutes section 14-2514 lays out the basic rules: “…a person may enter into a contract to make a will or devise or not to revoke a will or devise or to die intestate only by:
- Provisions of a will that state the material provisions of the contract.
- An express reference in a will to a contract and extrinsic evidence proving the terms of the contract.
- A writing signed by the decedent evidencing the contract.”
We have written about an Arizona case interpreting the statutory requirements before, and recently. In the case we described just a few months ago, the question was whether a decedent’s changes in his estate plan violated his divorce agreement to leave a share of his estate to his children from his first marriage — a slightly different question from the one we have posed here. (The answer, in case you were wondering and didn’t want to follow the link, was “yes” — and some of the changes he made in favor of his second wife were set aside by the courts.) We have also written about similar questions in other states — notably, an Iowa case in which a couple’s reciprocal wills were treated as creating an enforceable agreement to keep their estate plan the same.
But that’s not the question we pose here. Assume a happily married couple in complete agreement about how their property ought to be distributed on the second death. Each wants to assure that the other won’t later change his or her mind. Can they prevent that change, and if so, how?
If you have been reading along with us, you already know that the couple can enter into an agreement that neither will change their will, and that the agreement might be enforceable to set aside even lifetime transfers of property. Other cases we have described make it clear that it is at least theoretically possible to prevent even transfers of property to a living trust, or creation of joint tenancy, that would have the effect of changing the ultimate distribution.
When our clients ask us about these kinds of arrangements (and they often do), we first counsel that it is difficult to predict what the surviving spouse’s property, living arrangements and even family dynamics will look like twenty, ten — or even five — years after the first spouse’s death. Will the surviving spouse remarry, and spend two or three decades with a new spouse, commingling assets and developing new family relationships? Do the happily married couple sitting in our office want to try to preclude that from happening in the event that one of them should die much earlier than the other?
We have seen many cases in which stepchildren remain actively — and positively — involved in the lives of their deceased parent’s surviving spouse. But we have seen more cases in which the relationship slowly unravels, and a few in which the death of the first spouse to die leads to a terrific explosion in the family dynamics. Are you sure where on the scale of step-family relationships your own family fits, and how many years it will stay in that position?
Assume that you have gotten past all those concerns, and you and your spouse really do want to lock-in your estate plan so that it is not changeable after the first death. Is an agreement that neither of you will ever change your wills the best way to accomplish your desired result? Probably not.
First of all, there are many changes the surviving spouse might see which would not affect the ultimate disposition. Perhaps your selection of executor and agent under your power of attorney was influenced — positively or negatively — by your familiarity with the strengths and weaknesses of your children’s spouses. If they divorce, or one or more spouses die — you might want to change the sequence of appointment. Same if the surviving spouse moves to be closer to one of the children after the first death, or if the family home gets sold and turned into a small condominium, or into cash.
For those couples who want to provide for a particular distribution on the second death, we usually counsel that the best way to accomplish their goal is to create a living trust — all or a portion of which can become irrevocable upon the death of the first spouse. That means (in most cases) that the surviving spouse will be accountable to his or her step-children and children for the investment, distribution and use of the trust’s assets — possibly including the family home and other property in which the children are going to be given an enforceable interest. When clients protest that they don’t want to make the surviving spouse responsible to account to stepchildren, we have to ask: what protection are you offering your children if you give them an interest in your marital property, but don’t allow them to have any information to monitor that interest?
This planning problem is one of the most persistently troubling issues our clients face. How do you strike the proper balance between giving the surviving spouse freedom to live life as they choose, and still protect the ultimate inheritance for children? We have some ideas and experience, but we predict that you (our client) will never be completely comfortable that you have found the correct balance.