Estate planning can get complicated if you’ve been married more than once. How can we make everyone happy when we establish a living trust in California? I mean, there is the wife and children from the first marriage and now the new life with the new children in the new house with the new wife. It is definitely a juggling act.
What we can do is establish a Combined Family Life Trust to address these estate planning issues by creating our California Living Trusts that involve multiple marriages.
Let’s face it: it’s more common than not with California’s 50 percent divorce rate.
California is a community property state, so everything accumulated during the marriage belongs to both spouses. In other words, you are only entitled to half of that new home. Also, you can only leave your portion where you want, or your half. She can leave her half where she wants. Those community assets are jointly owned.
Here’s a possible solution for you: Let’s see Jim and Jan.
In our example, Jim is marrying Jan, each of them is in their second marriage and they each have a child and a house from their first marriage, AND they have a new son and a new house bought together. In this way, we can try to cover the whole range of possibilities.
June is Jim’s son from his first marriage and Joey is Jan’s son from his first marriage. Jesse is her newborn.
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.
In this way, Jim and Jan each leave their first home with their first married children. In this example, Jim leaves his rental home to June (his son from his first marriage) and Jan does the same with Joey (his son from his first marriage).
But they will probably want to leave the new home to each other, unless they both pass away, then it will go to the new child or divide it between the new child and the other children. The possibilities are endless.
Would it be awkward if Joe died and Joe left half of his new home to his children, forcing Jan to buy Joe’s children from his first marriage?
I have witnessed this. Joyce remarried Bill and the two were joint tenants. When Bill passed away, Bill’s part of the house (1/2) went to his daughter. The house was paid for at the time (no mortgage), but Joyce had to buy Bill’s daughter, charging a retired Joyce with a mortgage refinance to raise cash for the purchase.
Worse still, the property has appreciated (doubled in price), so the appraised value was double what they paid for the house. A monthly payment that Joyce couldn’t afford and was forced to sell the house. Is this really how we want to treat spouses? I do not think so.
All of this can be set up in the Blended Family Trust, where they take title to your new home as Jim Trust and Jan Trust, tenants in common, each with an undivided 50% stake. Jim re-titled his rental as Jim Trust and Jan re-titled his rental as Jan Trust.
And if you are tracking the ownership percentage and Jan put in 60% down and Jim only 40%, then Jan Trust can own 60% undivided interest and Jim Trust 40% as joint tenants. Your share will then be distributed according to the terms of each of your trusts.
If you are leaving your part of the new home to your children, another option so that your spouse does not have to buy them right away is to establish a residual trust.
In a residual trust, you can allow the surviving spouse to remain in the property for a period of time such as two years. This gives them time to fix things and cry. It is common to allow this as long as the surviving spouse uses the property as their primary residence.
Some common provisions would be that cohabitation is not allowed and / or ends when the surviving spouse remarries. You can create a lifetime estate, which would allow Jan to stay in the home until his death, and then, and only then, would the percentages be distributed according to the terms of each trust.
Mixed families can certainly complicate estate planning and creating living trusts in California. I hope this article has helped give you some ideas on how to approach it.