Exploring the Influences on Wills in Second Marriages: Key Considerations to Keep in Mind!

Several factors typically influence people's decisions regarding their wills in the context of a second marriage. These factors include:

- The length of time the spouses have been together

- The couple ages

- Whether they are financially dependent on each other

- Whether they have children together, or if there are only children from previous marriages

The primary concern often revolves around the family home. Couples want to ensure that the surviving spouse can continue to live there while also making provisions for children from previous relationships to inherit.

How to make sure the surviving spouse can keep living in the family home.

To ensure that the surviving spouse can continue living in the family home, the best approach is to establish a 'life interest trust' in your share of the property.

A life interest trust is a trust that is written into your will. It gives a named individual, usually the surviving spouse or partner, the right to receive income from the trust during their lifetime, while the assets themselves are held for the benefit of the ultimate beneficiaries, usually the children or grandchildren.

Life tenant

The person with the life interest is called the “life tenant.”

Remaindermen

Those who will ultimately inherit the assets when the life tenant no longer needs them are called “remaindermen.”

Under this trust, which is also referred to as an interest in possession trust, the surviving spouse can reside in the home for as long as they desire, or as long as they adhere to the trust's terms. Common conditions that could terminate the trust may include the spouse's failure to maintain the property or if they decide to remarry.

What you should consider when setting up a Life Interest Trust of the family home

The concept seems straightforward. It allows the surviving spouse to remain in the house for as long as they wish. However, the practical reality can be much more challenging. Like many areas of law, the strength of a trust is tested not when everything is going smoothly, but when problems arise.

Therefore, clarity is essential. It's important to address as many potential scenarios as possible that could trigger the end of the trust, as well as those that would be permissible along the way. Here are some considerations to keep in mind:

Who will maintain the property?

Choose trustees who are independent of the spouse and children to avoid conflicts of interest.

Can alternative properties be purchased if the survivor wishes to downsize?

What happens to the remaining proceeds if downsizing occurs?

Can the sale proceeds be used by the survivor in the case of an outright sale, for instance, to fund care?

Taking these factors into account can help ensure that the trust functions as intended, even in challenging circumstances.

Don't forget that time passes quickly

It's important to consider future circumstances when creating a will, not just your current situation.

For example, consider a married couple, each with children from previous marriages. They want to ensure that the surviving spouse can continue to live in their home while also making sure that their biological children inherit when both spouses have passed away.

The goal here is twofold: (a) allowing the surviving spouse to stay in the house and (b) ensuring that their children inherit.

It's essential to remember that, barring any unexpected events, when the surviving spouse eventually passes away, the children will likely be nearing retirement age themselves. Many clients mistakenly envision their children at their current ages while making their wills, forgetting that the reality will be different when the time comes for the children to inherit.

Restricting the surviving spouse's options?

It is acknowledged that a will trust would likely delay one of the key goals: the children receiving their inheritance. This won’t occur until the second spouse passes away. But what about the other priority—the surviving spouse?

This situation isn’t without its drawbacks either. For instance, if the surviving spouse owns half of the property and the trust owns the other half, they remain dependent on the trustees indefinitely.

Moreover, any decisions such as moving to a new house will require the involvement and approval of the trustees to ensure they align with the terms of the trust.

What alternatives exist to a Life Interest Trust for a property?

The rigidity of a life interest trust might initially seem appealing, but it also presents significant drawbacks that can impact estate planning negatively. This type of trust effectively locks assets in place for many years, potentially even decades. As a result, the surviving spouse may find themselves reliant on the terms of the trust, which may not align with their needs or desires.

This arrangement can also complicate the inheritance process for children from a first marriage, preventing them from accessing their inheritance at a time when it could be most useful—such as during critical life stages like education, home buying, or starting a family.

When considering alternatives to a life interest trust, it is important to take into account various factors, such as the types of assets that make up your estate and the duration of the second marriage. Each alternative presents its own advantages and challenges, demanding a careful balance between the interests of the surviving spouse and the rights of the children.

Here are several noteworthy alternatives that could provide more flexibility:

Mirror wills: This approach allows each spouse to make clear and outright provisions for one another, ensuring that in the event of one spouse's passing, the surviving spouse will inherit everything. Upon the death of the second spouse, the entire estate would then pass to all children from both marriages, promoting equality among the heirs.

Licensing for the spouse to remain: This option may permit the surviving spouse to continue living in the family home, often accompanied by cash legacies for their support. In this arrangement, the remaining assets or residue of the estate would be directed to the children, potentially dividing the estate between the spouse and children in a way that honors the deceased’s wishes while also providing for the surviving spouse.

Share of the residuary estate: Rather than straightforward cash legacies, this plan could involve allocating a percentage of whatever remains after debts and expenses are paid to the children. This approach can help level the playing field, ensuring that children from both marriages receive a fair share of the total estate.

Cash legacies to children: Instead of leaving everything to the surviving spouse, this option allows for the distribution of specific cash gifts to children, while potentially designating the family home and other substantial assets to go directly to the spouse. This ensures that both the spouse and children are provided for according to the deceased's wishes.

By exploring these alternatives, you can create a more nuanced and equitable estate plan. This thoughtful approach can ensure that both the surviving spouse’s needs and the children’s inheritances are adequately addressed, ultimately leading to a plan that fosters harmony within the family and respects everyone’s best interests.

How would Mirror Wills work?

Navigating the complexities of blended families requires a considerable level of trust between partners. In this particular arrangement, the new couple opts for traditional wills that designate each other as the primary beneficiaries. Upon the first spouse's death, all assets are transferred to the surviving partner. Then, upon the passing of the second spouse, the estate is to be distributed equally among all children, encompassing those from previous marriages as well.

This approach offers a straightforward solution for estate management, granting the surviving partner the autonomy to handle their inheritance without being subject to the oversight of trustees.

However, it also presents a significant risk. The surviving spouse has the legal right to alter their will at any time, which could potentially lead to the exclusion of the deceased partner's children from the distribution of assets—a possibility that could undermine the trust and intentions behind the original arrangement.

Cash Legacies?

Cash legacies, or a share of the residue, that pass to children upon the first death reduce some of the risks associated with the mirror will scenario mentioned earlier. This approach ensures that your children receive something.

Typically, cash legacies are meant to be token gestures. As an alternative, you could also gift a portion of your residuary estate to your children upon the first death. This guarantees that your children receive an asset while allowing the surviving partner the freedom to manage their affairs without the complications of a trust.

In simple terms, this arrangement offers a "clean break" upon your death, avoiding the situation where matters remain in limbo until the second partner passes away.

Permission to remain in the Family Home

This arrangement serves as a transitional solution to ensure that the surviving family member isn’t left without shelter immediately after your passing. You can establish the terms of the license, which effectively allows the survivor a reasonable amount of time to move out and, in doing so, realize their own financial interest as well as yours in the property.

You will also need to specify how cash legacies and the distribution of your residuary estate will occur. This approach is designed to facilitate a ‘clean break’ after your passing, without creating an ongoing trust.

Difference between Joint Tenancy and Tenancy in Common?

The way you hold property together is of paramount importance, particularly when considering the distinctions between joint tenancy and tenancy in common. For this discussion, we assume that you are co-owners of a family home in the context of a second marriage. If your intention is for the house to pass to someone other than the surviving owner (which could be your spouse or partner), it is essential to hold the property as tenants in common.

This arrangement grants you the flexibility to leave your share of the property to anyone you desire, whether that be a family member, a friend, or even a trust designed to manage your assets after your passing. It provides a means to ensure that your wishes are honoured in the distribution of your estate.

On the other hand, if you opt to hold the property as joint tenants, this decision comes with significant implications. Under this arrangement, the property is governed by the legal principle known as the ‘right of survivorship.’ This means that upon the death of one owner, their interest in the property automatically transfers to the surviving owner, irrespective of any contrary instructions outlined in your will. As a result, the rights granted by joint tenancy supersede the terms of your will, potentially negating your intended wishes regarding the future of the property.

Tips when creating a Life Interest Trust of the family home

When considering the family home in a second marriage and whether to place it in trust, there are several important issues to keep in mind:

Time: Consider what might happen in the event of the death of the second partner, rather than the first.

Trustee Accountability: Do you want the surviving partner to be dependent on trustees for the rest of their life?

Compromise: Is there a way to compromise so that your children can receive their inheritance at a more beneficial stage in their lives?

Mirror Wills: Could you opt for traditional mirror wills and trust the surviving partner to make the right decisions?

Clarity: If you believe that a life interest trust is the best choice, ensuring clarity in the trust is crucial. The issue often lies not in the details themselves, but in the absence of clarity.