Dear Quentin,
My husband and I just created a trust with the help of an attorney. I’m 68 years old and he’s 76, and we’re both in good health. I have a married, 26-year-old daughter. My partner has no kids. He and my daughter do not get along and, thus far, neither one has been able to repair the relationship.
He reluctantly said he will leave almost everything to her if I die. We are building a house on the beach, and I own the house that my daughter wants. I put it in a revocable trust so she will inherit it. He swears he will honor my wishes, but I have my doubts if their relationship is not repaired.
How do I ensure 100% that she will get the house that I own?
Caught In Between
“He may, indeed, decide his relationship with your daughter has deteriorated to the point where she, in his eyes, deserves $1.”
MarketWatch illustration
Dear Caught,
Blended families are not unusual and, as there is only one child, your case is simpler than most.
If you purchased your home prior to your marriage, and you have not used funds from a joint account to pay the mortgage and/or your husband has not contributed substantially to the upkeep or renovation of this home, it will remain separate property. Your daughter can inherit it.
Your daughter will only pay capital gains on the market value at the time of your death. So if she bought the house for $500,000 and it was worth $1 million when you died and worth $1.5 million when she eventually decided to sell, she would only pay capital gains on that last $500,000.
If you put your daughter on the deed, it could cost her hundreds of thousands of dollars if/when she decided to sell it. If you paid $500,000 and she sold the house for $1.5 million, your daughter would pay capital gains on the difference, minus her capital gains exclusion and fees.
You can leave your daughter other separate property in your will — any bank accounts that you held prior to your marriage — and make sure you name your daughter as beneficiary on other accounts, such as your life-insurance policy (depending on the state where you live).
Beyond that, you are trusting your husband to do the right thing. Or, more precisely, you are trusting him to do the right thing as you see it. He may, indeed, decide his relationship with your daughter has deteriorated to the point where she, in his eyes, deserves $1.
Creating trusts for a blended family
You are correct in that a revocable trust does what it says on the tin: it can be changed if you predecease your husband. (That is not exactly a given, especially if your husband is nearly a decade older than you are.) Still, you are right to plan for all eventualities.
You can create a joint trust with your husband that divides certain assets if you die first. Your husband’s assets would immediately pass to a revocable “survivor’s trust,” while your assets would pass to a “bypass trust,” which is irrevocable. Consult a lawyer and/or tax attorney.
“A survivor’s trust can help assets avoid the probate process. In doing so, beneficiaries will be able to collect the assets sooner,” according to Trust & Will, an estate-planning resource. Assets in a bypass trust can avoid estate taxes and probate, which can be time-consuming and costly.
This provides you more flexibility. “The joint pour-over trust lets each spouse transfer assets where they want, when they want, to whom they want, and in the way that they want,” per this guidance from Robinson & Henry, P.C. a law firm with offices in Colorado and Texas.
“Under a joint pour-over trust, one umbrella trust is created with a separate trust under the umbrella for each spouse. That means three trusts are created in one trust document. Upon the first spouse’s death, the joint trust rolls its assets into two separate trusts,” it says.
A lawyer would help you navigate the process, but you should leave nothing up to chance.
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.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell: