Chapter 11 Property Control Trusts

• Library: Estate Planning Basics (Nolo) (2022 Ed.)

CHAPTER 11: Property Control Trusts

Marital Property Control Trusts for Second or Subsequent Marriages

Special Needs Trusts for People With Disabilities

Education Trusts

Spendthrift Trusts

Flexible Trusts

You may want to, or believe you need to, control how your property is managed and distributed for an extended period of time after your death. For instance, if you're in a second or subsequent marriage, you may want to ensure that your property ultimately goes to your children from a former marriage, while also allowing your current spouse some benefits from your property. Or you may want to leave property to someone who, for one reason or another, needs help managing it, such as a child with a disability.

He usual way to impose controls over your property after your death is by creating a trust. Here we'll look at how you can use different types of what I call "property control trusts" to achieve your goals. (A related concern, leaving property to a minor or young adult, is discussed in Chapter 3.)

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Most property control trusts are not a do-it-yourself job. Except for the special needs trust discussed below, you'll need to hire an attorney if you want to create any of the trusts discussed in this chapter.

Marital Property Control Trusts for Second or Subsequent Marriages

In many second or subsequent marriages, one or both spouses may feel conflicted about estate planning. On one hand, a surviving spouse may well need use of or income from the deceased spouse's property, or may even need to spend some of that property to live comfortably. On the other hand, children from a former marriage may expect a large portion of that property soon after their parent dies.

Even if children aren't insistent, a parent may want to help with their financial needs. Further, even if children are willing to wait for their inheritance until both spouses die, the children may still be understandably concerned that their inheritance be preserved, not consumed by a surviving spouse. These kinds of problems—which can be dicey at the best of times—become even more complicated if your spouse and children from a former marriage don't get along well.

You may be able to use a distinctive type of trust, which I call a "marital property control trust," to reconcile your desires for your spouse and children. With this kind of trust, you name your spouse as the life beneficiary for trust property. (A life beneficiary has defined rights to use trust property during his or her life, but no right to leave that property to anyone.) You name your children or other inheritors as the final beneficiaries, to receive all trust property after your spouse dies. If your spouse doesn't survive you, the trust property goes directly to your final beneficiaries when you die. The life beneficiary of a marital property control trust usually has narrowly defined, restricted rights to the trust property.

Unmarried Couples
This chapter talks in terms of subsequent marriages and surviving spouses because most people who do this type of estate planning are married. But the principles apply equally to unmarried couples with children from previous relationships.

EXAMPLE: Tim and Margaurite are married; both are in their 50s. Tim has a son from his first marriage. Margaurite has two daughters from hers. The couple purchases a house for $1.6 million. Each contributes $200,000 toward the down payment; mortgage payments are shared equally. Each owns one-half of the house. When one spouse dies, each wants the other spouse to be able to live in the house for the remainder of his or her life. But after both have died, each wants his or her share of the house to go to the children of their first marriages. So Tim and Margaurite each create a marital property control trust. Each spouse's trust allows the surviving spouse full use of the house, but not the right to sell it. When the surviving spouse dies, half of the house goes to Tim's son, and the other half to Margaurite's two daughters.

The key to a marital property control trust is that the rights of the surviving spouse to trust...