Clients often ask how to make their estate plan irrevocable. In most (but not all) cases, the question comes from a married couple — often in a second or later marriage, and with children from earlier marriages. The actual question one spouse asks: how can I be sure that my spouse can’t change our estate plan if I die first?
The question is surprisingly complicated
Let’s imagine a fairly typical situation. Pat and Terry, both in their 70s, married twenty years ago. Pat had two children already, and Terry had three. All five children were grown before their parents married, but all five are equal in Pat and Terry’s eyes.
Pat and Terry ask us to prepare an estate plan that leaves everything to the survivor of them on the first death, and all to the five children equally on the second death. But both Pat and Terry worry that after the first death, the deceased spouse’s children might not remain close to the surviving spouse. The survivor might favor their own children — or even remarry.
Pat is particularly concerned, based on a prior family experience. Pat’s father remarried after Pat’s mother died, and the entire family wealth went to Pat’s stepmother. She never really liked Pat, and the outcome was both unsurprising and surprisingly hurtful.
But here’s one of the real complications: Pat and Terry are probably imagining what the family dynamics might be like after one or the other dies. What neither is really thinking about is what those dynamics will look like ten, or twenty, or even thirty years later.
And what will really be “fair” then? Will the surviving spouse continue to work? Will the surviving spouse’s new spouse contribute to the household, or leave money to the surviving spouse themselves?
Pat and Terry know exactly what they want
But Pat and Terry are beyond that. They’ve thought it through, and decided that they want to make their joint estate plan irrevocable. If the surviving spouse wants to remarry, they’ll just have to grapple with the fact that their estate plan is already sealed. If any of the five children start behaving differently after the first death, that’s not going to change the outcome.
So how do Pat and Terry make their estate plan irrevocable? There are a number of options — none of them completely satisfying, but each tending toward Pat and Terry’s desired outcome.
Contract to not change their wills
Pat and Terry could sign a contract not to change their wills without the other spouse’s consent. Of course, after one spouse dies that would mean there’s no one left to consent to any change. A contract like that is recognized under Arizona law, and enforceable.
A contract to not change a will can take any of several forms. It can even be a contract to make a will with particular provisions. The agreement needs to be express, however — the mere fact that Pat and Terry have virtually identical wills does not mean that the surviving spouse can not change their will.
How does the contract get enforced? All five children should know about the agreement, since the surviving spouse’s lawyer probably won’t know about the existence of any such contract when updating the estate plan.
It can also be pretty easy to get around the terms of a contract not to make a will. The surviving spouse might put “Payable on Death” or “Transfer on Death” designations on financial accounts, or put all assets into a living trust, or give them away during life. The children of the deceased spouse might never know that there was even an issue to address. Of course, they will know more about what is going on if they stay in touch (and involved) with their step-parent after the first death. Maybe that’s a good thing all by itself.
Giving the children a share on the first death
Pat and Terry might simply resolve to give half (or some other fraction) of their assets to the children of the first spouse to die at that time. Pat’s two children might thus get one quarter (each) of the couple’s assets on Pat’s death.
But that’s unsatisfying, as well. Are Pat and Terry ready to require sale of their home on the first death? Will they be comfortable knowing that their savings, or their retirement accounts would not be available to the surviving spouse?
This approach usually works better if Pat and Terry were married later in life. They may think of the money as separate if it was mostly acquired before the marriage. Then they can plan accordingly. But for an actively-working married couple, the division at the first death might not be easy or comfortable.
Making a trust irrevocable at the first death
Most often, couples like Pat and Terry will decide to put all of their assets into a joint revocable trust. They can then provide that all of the trust (or at least some of it) becomes irrevocable on the first death. That way the children will ultimately get their shares on the second death.
Except that the surviving spouse can still manipulate the outcome. Will the surviving spouse be trustee? If so, they might choose to spend the money during life on their own children, or on their new spouse. They might even make lavish gifts to their favorite charity, frustrating the couple’s original intent.
Handing over some authority to others
That outcome might be easy to address. Pat and Terry could make one (or more) of the kids joint trustee with the surviving spouse. One of the kids could even be sole trustee after the first death. We usually do not see Pat and Terry getting excited about the pleasure of asking their stepchildren for permission to fix the house, or take a cruise. But sometimes clients are willing to take those limitations in order to make their estate plan irrevocable.
Another choice can be to select a non-family trustee. A bank, a law firm, or a trusted professional might be a good choice to manage the trust. Of course, that incurs costs after the first death. It might be easier to ask the trustee for home repairs or a cruise when it’s not the stepchild, but it still means an outside person making distribution decisions.
Sometimes Pat and Terry decide to establish a “trust protector” to monitor the trust after the first death. The trust protector can also have the power to amend the trust — or even to delete (or add) beneficiaries, if Pat and Terry are concerned about how the children will behave after that first death. Again, though, that can increase costs.
Years ago it was easy to say that an irrevocable trust could not be altered. Today’s reality is that it is often not complicated to modify even irrevocable trusts after the first spouse’s death. Trusts are much more flexible than they were once thought to be.
Is there no way to make an estate plan irrevocable?
Yes, there can be. We employ them regularly, and they often work. But we always counsel Pat and Terry: be aware that your carefully-crafted plans might get unraveled long after your death.
Are there things that can be done? Yes. Are there things the surviving spouse can do to frustrate the original plan, even after agreeing not to? Yes. We want Pat and Terry to talk through these issues, and assure us that they are comfortable with the steps they intend to take — or not take.