It is trite, but perhaps worth repeating that for many people, one of their primary estate planning goals is to take care of their spouse after their death. This is particularly the case if most of the couple’s assets are held by one spouse or where the spouses are in a later-life relationship—the second spouse—and/or have children from a previous relationship.
Unfortunately, there are a number of complicating factors that can make for a bumpy road from drafting an estate plan to the smooth and efficient implementation of the plan.
Failure to consider what is essential to properly take care of one’s spouse, to update estate planning to take into account evolving circumstances between the spouses, to meet challenges to the plan, and deal with disagreements between executors or other beneficiaries and the surviving spouse can all quickly cause a plan to veer off course.
Sometimes, a simple plan leaving assets to a spouse is the best course of action. However, in many situations this is neither desired nor practical. More complex planning may be needed to ensure all goals are met, including supporting a second spouse for their lifetime and leaving the capital to the next generation or charity.
It is necessary to carefully consider what amounts or assets are required to provide for a spouse for their lifetime. In the current interest and inflationary environment and with longer life expectancies, more funds may need to be allocated to provide for a surviving spouse’s lifetime needs. Additionally, with inflation, asset allocation will be key to preserve the spending value of capital put aside for a second spouse.
Once a proper plan is put in place, the plan must be regularly reviewed and updated. A plan which does not evolve with changing circumstances can create problems and disputes. A completely adequate amount of capital for a plan created 10 years ago might be inadequate when taking into account current inflation rates and market conditions, and well as spouses’ lifestyles or needs change.
Failing to update a plan may leave beneficiaries with a false impression that the outdated plan was the spouse’s final wish when this may not in fact be the case, or may lead to disputes, including a dependent’s relief claim or other claims by the surviving spouse, based on unfulfilled needs or expectations. If a claim is disputed by other beneficiaries or viewed with hostility by the executor, this will significantly increase costs to the estate which could otherwise have been avoided.
Other aspects of the plan should also be carefully considered and updated as necessary including who will be appointed as executors of the deceased spouse’s estate and as long-term trustees of any trust set up for a surviving second spouse.
Simply appointing the children from a previous relationship who will ultimately inherit the capital of the trust can lead not only to increased costs due to possible hostility between the children and the surviving second spouse but can create a situation where the surviving spouse must litigate to obtain fair and reasonable payments from the trust for their expenses.
Similarly, appointing the surviving second spouse can create an environment where the children may feel compelled to challenge decisions made regarding spending from the trust during the spouse’s lifetime.
Consideration should be given to the appointment or one or more neutral trustees. A family friend who could be biased towards one party or another may not be a wise choice, although they might appear neutral to those unfamiliar with the situation. Professional trustees should be considered in these situations – the cost of their compensation may be far less than expensive litigation.
Providing for a second spouse after your death is a goal that requires a thoughtful approach and frequent revisiting. It does not allow for a “set it and forget it” attitude; much as self-driving cars are still an unfulfilled dream, if you want to set up an estate plan which will fulfill your goals without leading to family acrimony and disputes, you must ensure you don’t fall asleep at the wheel or wander off course without experienced professional guidance as your GPS.
— Susannah Roth