Without preparation, the passing of a loved one can result in difficult and unexpected challenges. In recent columns, I have addressed this point with the example of a second marriage in which the husband moved into the house already owned by his new spouse. Upon her death, who will determine if the spouse can continue living there? If he continues to live there, what effect will this have on her children’s right to receive the home for their inheritance?
One solution is the use of a “life estate.” If the homeowner has prepared in advance, she can grant her spouse the right to live in the home even after she passes. Upon his passing, the home goes on to her children. However, this arrangement does not happen automatically and, if left to a second spouse to work it out with his stepchildren, the results can be very difficult for all involved.
Another solution exists with the use of a trust, with more flexibility than simply leaving a life estate to the surviving spouse. For example, if the homeowner has placed her home in a trust, the trust document can instruct the circumstances in which the surviving spouse can remain in the home (much like granting a life estate). However, a trust will also provide for a trustee who can ensure the deceased spouse’s wishes are respected. This method allows a way to address circumstances that may never have occurred to the deceased spouse.
The example of a second spouse, and his ability to stay in the house, is just one of many examples where planning now can preserve assets and relationships. Each family’s circumstances are different. As a result, there is no form that can address all the issues that may be important to you. However, there are some fundamental concepts which, if followed, can dramatically reduce the risk of unpleasant surprises for those you leave behind.