Dear Moneyist,
My husband has two daughters from a previous marriage — we all get along quite well, and my husband has a wonderful relationship with both girls. After we got married I arranged for us to meet with an attorney to have our trust set up. I wanted to ensure we were planning appropriately in the event anything should happen to us.
My husband has two properties that he owned prior to our marriage. In our original trust plan his daughters would receive one of the properties (the one they lived in for many years and that now is collecting rental income) and I would receive the other property. The rest of the trust was straightforward; assets would go to the survivor on first death and upon both deaths the trust would be split 50/50. Fast forward a few years: We have bought a new house and had a son.
We are revisiting the trust and it’s become a bit more complicated. I think it makes sense for my husband’s daughters to receive the property they grew up in. However, I want to ensure that everything is fair and inclusive of my son as well. I think my husband is also concerned that if we both die my son would receive my share of the trust as well as one-third of my husband’s portion of the trust. I think this is completely fair, but I am not sure my husband agrees. I would not be comfortable with my share being split evenly between all three kids.
We have generally always been able to reconcile and agree on financial decisions and philosophies, but now we’re stuck. I want to be fair to all the kids, but my husband’s kids are not my kids.
What should we do? What would be the most fair?
Cheryl
Dear Cheryl,
There’s one way of looking at this: Your assets belong to you and they do not belong to your husband, and certainly not your stepdaughters. With that assumption, 100% of the assets you bring into the marriage should go to your biological son. But it seems like you have started this marriage by mingling your assets. I don’t think you can have it both ways.
Here’s an example: Your husband had two properties coming into this marriage. In community property states, those homes would not be considered marital property and — if you decided to divorce — you would both take out of the marriage what you brought into it. In that case, your husband would take both homes. On his death, his daughters would inherit them.
Also see: I’m a full-time caregiver for my father — don’t I deserve more money than my siblings?
I agree with your husband. To tip the scales in favor of your son with the family trust would do an injustice to your marriage and your entire family. Your stepdaughters may receive an inheritance from their biological mother too, but to split up the trust where your son gets one-third of your husband’s share and 100% of your share — which is 50% of the trust — seems unfair to your stepdaughters, especially given their father’s money is invested here too.
But you’re wise to set up a trust for all three children and have this conversation about who gets what now. Not all spouses honor their wife/husband’s wishes after they’re gone. In most jurisdictions, a couple can enter into a contract not to change their respective wills, should they wish to leave their own children more or ensure that each child and stepchild receives an equal amount. Without a will, the state’s laws take precedence and typically stepchildren get nothing.
A good estate attorney will help you navigate this dilemma and, of course, the answer may also depend on how many assets you brought into the marriage.
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