AUGUST 17, 2015 VOLUME 22 NUMBER 30
We frequently see clients in second (or even third or fourth) marriages, with children from prior relationships. When we discuss how their assets should be distributed, they can usually give us a quick summary. Their plans vary, but they often fit into one of these models:
- Maybe the couple have kept their assets mostly separate, and on the first death they expect that the deceased spouse’s assets will pass to his or her children.
- Sometimes they couple have commingled assets, and they intend to leave everything to the surviving spouse — with no restriction on how the survivor will handle the funds after the first death.
- Perhaps the couple has commingled some assets and kept others separate, and they want the surviving spouse to have fairly free access to the combined assets during the rest of his or her life — with everything to go to some combination of both sets of children on the second death.
- Once in a while (especially in long-term second marriages) the couple intends to leave the surviving spouse with almost unlimited access to all funds — but each wants to constrain the other to leave all remaining assets to both sets of children on the second death.
Sometimes grandchildren or others friends or family members fit into the couple’s plan, but some variation of these options is usually under consideration. Of course, one of the principal problems is that, while the couple may have thought about their simultaneous deaths, or deaths in fairly close order, they might not have given much thought to the possibility that the surviving spouse might live ten, or twenty, or thirty, years after the first spouse’s death. Family dynamics and relationships can change pretty dramatically in such a case.
That scenario was involved in a recent case out of Indiana. James and Fiona Masterson (not their real names) were married in 1998. James had a son from his first marriage (his first wife had died shortly before he and Fiona were married). Fiona had two children, but wanted instead to leave her portion of any estate to her granddaughter.
James and Fiona signed identical wills shortly after their marriage — and they also signed an agreement not to change those wills. The agreement provided that each promised “not to revoke or alter in any way, for any reason, his or her will executed pursuant to this agreement.” Those were the wills in place when James died a decade later.
Under the terms of James’ will, everything passed to Fiona. Her will, in turn, left half of everything to James’ son David, and half to her own granddaughter Gillian.
Over the ensuing years, Fiona and her stepson David largely lost contact with one another. About two years after her husband’s death, Fiona signed a new will — this one left everything equally to her two children (disinheriting both David and Gillian). Then Fiona died in 2012.
Because they had lost touch, David did not even know that Fiona had died until months after the fact. Nor did he know that her son had introduced her new will to probate and was in the process of dividing her estate between her two children.
Within a few days of learning about Fiona’s death and the probate of her new will, he filed a claim against the estate and Fiona’s two children. They objected that the claim was untimely under state probate law, and that David should take nothing from the estate. The probate court agreed and dismissed David’s lawsuit.
The Indiana Supreme Court reversed that dismissal and sent the matter back for further hearings. According to the state’s high court decision, the question was whether Fiona’s children knew or should have known about the agreement not to change her earlier will. If they did know (or should have known), then they were required to give actual notice to David — which would excuse his late filing. Markey v. Markey, August 4, 2015.
The significance of James and Fiona’s story is less about the legal technicalities than about planning.
After all, contracts not to change a will are valid in most states (including Arizona, which has a statute detailing what such contracts should look like). Having such an agreement, however, often begs the question — how will it be enforced? What about lifetime gifts, or establishment of a living trust?
If the couple really did want to constrain the surviving spouse, how might they have done a better job? Typically, we counsel married couples that to control the ultimate disposition they really should be thinking about a trust arrangement, and name someone other than the surviving spouse as trustee (or name a co-trustee). This option is more cumbersome (and often more expensive) but will have a better chance of leading to the desired result.
We also counsel couples to try to imagine not only what the domestic situation might look like shortly after the death of one spouse, but also what it might look like a decade or two later. In James and Fiona’s situation, for instance, they might not have realistically considered the possibility that Fiona and David would have little contact in the two decades after James’ death. They apparently did not think about how Fiona’s relationship with her children and granddaughter might change during that time, either.
There is no easy answer to a problem that occurs with increasing frequency as familiar family relationships change over time. Clients must realistically review their wishes — as well as the strength of those wishes — and think about alternatives to accomplish shared goals.