In second marriage planning, we often recommend that the lawyer act as co-trustee on the death of the first spouse. While both spouses are living and competent they naturally run their trust or trusts together. But when one spouse dies, what prevents the other spouse from taking all of the assets and diverting them to their own children? Nothing at all, if they alone are in charge. While most people are honorable, and many are certain their spouse would never do such a thing, strange things often happen later in life. A spouse may become forgetful, delusional or senile or may be influenced, sometimes unduly, by other parties. Not only that, but what are the children of the deceased spouse going to feel when they find out their stepmother is in charge of all of the couple's assets? They are going to imagine the worst case scenario and feel very insecure and possibly even hostile to the surviving spouse.
As my esteemed trusts professor said to my law school class over thirty years ago “you would be surprised by how fast the family glue comes undone.”
Now, if you choose one of the deceased spouse's children to act as co-trustee with the surviving spouse what have you done? Created a potential minefield. The biggest issue is the conflict that exists whereby the stepson may be reluctant to spend assets for the surviving spouse, because whatever is spent on her will come out of his ultimate share. Then what if she gets remarried? How will he react to that event? What if it turns out he liked her when his father was living, but not so much or not at all afterwards? These things often happen.
Here is where the lawyer as trustee may provide an ideal solution. When parent dies, the lawyer steps in as co-trustee with the surviving spouse. The lawyer helps the stepparent to invest for their own benefit as well as making sure the principal grows to offset inflation, for the benefit of the heirs.
It is a firmly established legal principal that there is no ethical prohibition against the attorney recommending himself to act as a trustee on behalf of a client or client’s estate. And for good reason. In many situations the counselor may provide invaluable assistance that no one else is willing or able to provide.
The stepparent in this case takes care of all their business privately with their lawyer. The trusts are protected from being raided. These protections may also be extended for IRA and 401(k) money passing to the spouse through the use of the “IRA Contract”. Surviving spouse agrees ahead of time that they will make an irrevocable designation of the deceased spouse’s children as beneficiaries when the IRA is left to the surviving spouse, and further agrees that any withdrawals in excess of the required minimum distribution (RMD) may only be made on consent of the lawyer.
What about the deceased spouse’s children? When the trust terms are read they will feel secure that the lawyer their parent chose will continue on for the stepparent’s lifetime, looking after and protecting their share of the assets. They are relieved by the protection that has been set up for them, have no animosity or concern about the stepparent’s having sole control of the assets and the relationship between the families may continue smoothly and even grow and flourish.