My late father was under the impression that he and my stepmother had an irrevocable trust set up. He was wrong. He passed away in September and now we have learned it is actually a revocable trust. It was a mistake. My stepmom is letting her son handle things for her, and has talked her into changing the trust so that he will get everything when she passes, so he can help take care of her sister who has mental-health issues.
This will effectively cut me and my siblings out of any part of my father’s estate. Everything, including their home was supposed to go into the trust, and when both my father and stepmother ended up passing, the home was supposed to be sold and all proceeds split evenly between all of their beneficiaries, including my siblings and me. Is there anything we can do to assure my father’s wishes are granted?
Daughter/Stepdaughter
“Many obstacles lie ahead. The burden of proof lies on your doorstep, and you should be cognizant of the statute of limitations in your state.”
MarketWatch illustration
Dear Daughter,
It is stories such as this that give all the wonderful stepmothers out there a bad rap.
There are a few possibilities here: 1) Your father set up a revocable trust by accident and did not properly understand the difference between the two trusts; 2) he set up a joint trust where only his portion of the assets became irrevocable upon his death; or 3) he at some point changed his mind and set up a revocable trust, and left his assets for his second wife to distribute to his respective heirs. Even if #1 occurred, it would be up to you to prove this in a court of law, with the help of an attorney, in the event you contested the terms of this trust. Keep in mind, there are many variables that go into creating a trust, so it highly depends on the terms laid out.
But many obstacles lie ahead. The burden of proof lies on your doorstep, and you should be cognizant of the statute of limitations in your state. “Trust contests must be brought within a certain period following the grantor’s death,” says Brian Liberis, senior estate planner at EP Wealth Advisors, based in Boston, Mass. “So if a court action is necessary, it should be undertaken as soon as possible. In addition, you would likely have the burden to prove that the trust did not reflect your father’s intentions and that a mistake was indeed made.”
“However, some revocable trusts are drafted so that they continue to be revocable until the death of the second spouse,” Liberis told MarketWatch. “If that were the case here, then your stepmother would likely have the authority to change the entire trust and redirect the assets to her children. If that is how this trust was drafted, then your only recourse would be to contest the trust in court, on the grounds that it should be modified/reformed due to a ‘mistake.’ That is, the trust as drafted did not reflect your father’s intentions.”
Principles of fairness
Obtain a copy of the trust, so your attorney can review the terms, and see if there was any evidence that it was poorly constructed and/or if only a share of the assets are revocable. “You would be asking the court to modify/reform the trust on principles of ‘equity,’ or fairness,” Liberis adds. “If, at the time it was executed, it was intended that, upon the death of the second spouse, the property passed 50/50 to the children of each spouse, then principles of fairness would dictate that the trust be reformed to ensure that result — or, at least, so you would argue.”
Your stepmother appears to be intent on ensuring the assets in the revocable trust — or the part of the trust that is revocable — will be inherited by her son. That may be an expensive lesson for you and your father; the surviving spouse will not always adhere to their late partner’s wishes. Whether it’s a large or a small amount of money, the second wife or husband can come to believe that they deserve or are entitled to their late partner’s entire estate. We could argue about the ethics of cutting you out of the picture, but your focus should be her legal entitlement.
If you are successful in your endeavors, be aware that assets deposited in a revocable trust typically receive a step-up in basis, so any capital gains are effectively wiped out. That would, of course, benefit your stepmother. So if he left a $1 million home that was originally purchased for $500,000, any capital gains would be calculated on the home’s value at the time of your father’s death, thus saving her money if she sold it. However, assets in an irrevocable trust may not receive a step-up in basis if they were not included in your father’s taxable estate.
If men were more likely to outlive their wives — women tend to outlive men by about six years, a gap that could narrow or widen depending on the age gap between a couple — step children would be writing more letters about their stepfather. In this column, letters about stepmother’s emptying bank accounts are more prevalent than stepfather’s doing the same thing. But children are also likely to disagree with their father’s wishes, if they believe he has been too generous to his second wife. In the meantime, I wish you a painless resolution to your trust debacle.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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