Estate Planning sure can get complicated if you’ve been married more than once. How can we keep everyone happy when we set up a living trust in California? I mean, there’s the wife and kids from the first marriage and now the new life with the new kids in the new house with the new wife. It’s definitely a juggling act.
What we can do is set up a Blended Family Living Trust to cope with these estate planning issues when creating our California Living Trusts involving multiple marriages.
Let’s face it – it’s more common than not with the 50 percent California divorce rate.
California is a community-property State, so everything accumulated during the married belongs to both spouses. In other words, you’re only entitled to half of that new home. Moreover, you can only leave your portion where you want, or your half. She gets to leave her half where she wants. Those community assets are jointly owned.
Here is a possible solution for you – let’s look at Jim and Jan.
In our example, Jim marries Jan, each of them are on their second marriage and each has a child and a home from their first marriage, AND they have a new child and a new home purchased together. In this manner, we can attempt to cover the entire gamut of possibilities.
June is Jim’s kid from his first marriage and Joey is Jan’s child from her first marriage. Jesse is their new born.
Can we do all of this in a Living Trust?
The answer is yes and with two trusts: a Jim Trust and a Jan Trust.
This way Jim and Jan each leave their first house to their first marriage kids. In this example, Jim leaves his rental home to June (his child from his first marriage) and Jan does the same with Joey (her child from his first marriage).
But they’ll probably want to leave the new home to each other, unless both of them pass away, then it will go to the new child and or split it between the new child and the other children. The possibilities are endless.
It would be awkward if Joe died and Joe left his half of their new home to his kids, forcing Jan to buy out Joe’s kids from his first marriage?
I have witnessed this. Joyce remarried Bill and they were each tenants in common. When Bill passed, Bill’s portion of the home (1/2) went to his daughter. The house was paid for at the time (no mortgage), but Joyce had to buy Bill’s daughter out, burdening the retired Joyce with a mortgage refinance in order to raise cash for the buyout.
Even worse, the property has appreciated (doubled in price), so the appraised value was twice as what they paid for the home. A monthly payment Joyce could not afford and was forced to sell the home. Is this really how we want to treat out spouses? I think not.
This can all be setup in the Blended Family Trust where they take title on their new home as Jim Trust and Jan Trust, tenants in common, each owning a 50% undivided share. Jim re-titles his rental as Jim Trust and Jan re-titles her rental as Jan Trust.
And if you are keeping track of percentage ownership and Jan put 60% down and Jim only 40%, then Jan Trust can own an undivided 60% interest and Jim Trust 40% as tenants in common. Then their share will be distributed accordingly to the terms of each of their trusts.
If you are going to leave your share of the new home to your children, another option so that your spouse doesn’t have to buy them out immediately is to set up a Residuary Trust.
In a Residuary Trust, you can allow the surviving spouse to stay in the property for a period of time like two years. This gives them time to get things settled and grieve. It is common to allow this as long as the surviving spouse uses the property as their primary residence.
Some common provisions would be no co-habitation allowed and/or it ends when the surviving spouse remarries. You can create a Life Estate, which would allow Jan to stay in the home until she passes, and then, and only then, would the percentages be distributed according to the terms of each trust.
Blended Families can certainly complicate estate planning and setting up living trusts in California without a doubt. I hope this article helped give you some ideas on tackling it.