I have a question about our rights to an estate once my stepmother passes away.
Here is some history: My father was married to my stepmother for 30 years. She acted as a mother to me growing up and we had a reasonably good relationship. My father and stepmother built a successful business together and had decent-sized investments in stocks and bonds, and their home.
My father had set up his assets like their home, etc, as a “tenancy in entirety” in the state of Florida. However, he and my stepmother also had an irrevocable martial trust in which, as I understand it. My father and stepmother had a child together (my sister), but she passed away about 16 years ago. Only my brother and I are survivors as named inheritors within the marital trust.
My stepmother remarried. She now has no interest in giving my brother and me anything. Her intention is to bequeath her properties and investments to her current new husband and her nieces and nephews on her side of the family.
Will his marital irrevocable trust have any protection for me and my siblings so we have rights to the assets once she passes away, or does she have the right to re-direct the assets to unnamed individuals outside of the marital trust?
Stepchild
The clue is in the question.
The trust is irrevocable. It’s not subject to change, especially upon the whims of one of the beneficiaries. Assuming your father set up this trust to benefit his spouse in addition to his two sons, there are three beneficiaries rather than one. A trust has a grantor (your father), the trustee (appointed by your father; it could be a family member, lawyer or financial adviser) and the beneficiary or beneficiaries. The trustee ensures that the beneficiaries abide by the rules.
Marital trusts are especially important for blended families so each spouse ensures that their respective children are taken care of if one of them dies. A stepmother or stepfather may promise their spouse and stepchildren the world while both parties are living but, as the pages of this column can attest, they can have a swift U-turn upon the death of their spouse. Your stepmother appears to have experienced one such change of heart.
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In addition to making sure that your wishes are fulfilled posthumously, marital trusts have other benefits. “Marital trusts are significant in estate planning for high-net-worth individuals, serving as a tool to minimize the estate tax burden by taking advantage of estate tax exemptions,” according to the law firm Keane Thomas & Pinnacoli in Jensen Beach, Fla. “A married couple can significantly reduce or eliminate estate taxes by utilizing a marital trust.”
Marital trusts can also distribute funds based on need. For example, if one child goes to college, the trust can provide for that. If another child falls off the wagon and needs rehab, the trust could fund that too (or not). “The surviving spouse can receive income and financial stability from the trust,” the law firm adds. “Assets are kept in the family, and the inheritance intended for children from previous marriages is protected.”
Even assuming all things are equal and both spouses would have upheld their respective promises to each other, the tax benefits are significant. “A marital trust effectively doubles the estate tax exemption for a married couple, ensuring that a more significant portion of their wealth can be transferred tax-free,” Keane Thomas & Pinnacoli says. “In the context of the federal estate tax, this can result in substantial tax savings and financial security.”
A “tenancy in entirety” enables each party to own 100% of the property, which prevents creditors from being able to place a lien on the property in the event one owner falls into debt. However, this type of property ownership is similar to “joint tenancy with rights of survivorship,” meaning that if one spouse dies, the other spouse automatically inherits the property. As such, the transfer of ownership happens outside of probate.
So what do you do next? Information is your friend. You have been forewarned, for better or for worse, by your former stepmother. After 30 years, she has made clear that her own immediate family and her new spouse are her priorities. That’s fine, good luck to her. Put any anger and hurt feelings aside, contact an attorney who specializes in such trusts, inform the trustee, read the terms of the trust, and make sure that your inheritance is rock solid.
Your father made a wise decision, in retrospect.
The Moneyist regrets he cannot reply to questions individually.
