Q: My husband, 70, and I, 53, have been married six years and have two grown children each from previous marriages. We brought about equal assets into our marriage, and--thanks to a relatively modest lifestyle, prudent investing and the long-running bull market--we now find ourselves amid the ranks of the "semi-affluent" with $1.5 million invested.
My concern: Barring a freak accident or illness, I am likely to outlive my husband by many years and may even outlive one or both of his children. I do not wish to deprive them of an inheritance, yet I also want to be sure that I have a comfortable retirement (and I know the stock market could take away much of what it has given us). The thought of them waiting around for me to die is not pleasant, nor does it seem fair.
Is there a way we could set things up so that if my husband dies first, I could then, if there are sufficient funds, distribute part of the trust to them immediately? If not, is there some other structure that would make more sense for people in our situation?
A: You've put your finger on the flaw in many estate plans. Too many people focus only on avoiding estate taxes, not realizing that the trusts they're setting up can rob them of later flexibility.
Typically, parents set up a bypass trust so that when the first spouse dies a portion of the estate escapes estate taxes; the surviving spouse can live off income from the trust, and the money goes to the children at the surviving parent's death. But that, as you note, could be a long way off.
The situation is perhaps most acute for much-younger second spouses who conceivably could outlive the stepchildren, depriving them of the inheritance their parent wanted them to have.
Of course, without the trusts, the surviving spouse could remarry a wastrel and blow the inheritance the deceased parent had planned to pass along. With a trust, however, the children's and the surviving parent's interests are always at odds. The children, typically, want the money invested for growth; the parent might want the money invested for income. Fights over trusts have sundered many family relationships.
Some surviving spouses deal with this issue by disclaiming all or part of the inheritance. A disclaimer simply means you refuse the money, and it passes to the alternate beneficiaries--the people your husband named to receive your share should you die before him. You're not allowed to direct where the money goes--the will or trust must specify who gets it if you don't survive or don't choose to claim it.
Disclaimers can work instead of or in addition to trusts. But once you give the money away with a disclaimer, it's gone forever. If you run low on cash in later years, you're unlikely to persuade the stepkids to return the money. It makes sense to have sound financial and estate planning advice before taking this step; it's not a do-it-yourself situation.
Call the California Bar Assn. or visit its Web site at http://www.calbar.org to get a list of certified estate specialists. The money you spend setting up a workable, flexible estate plan will pay off in dividends of family harmony and peace of mind.
Convenience Fee Hardly a Rip-Off
Q: My son's parochial school provides an automatic deduction service for tuition payments, but we have to pay $38 a year for this service. We have the option of paying upfront in July, although we aren't given any type of discount. It seems like a consumer rip-off. Can I do anything to stop it?
A: Sure. Pay your bill in full in July.
Honestly, if this is your idea of a consumer rip-off, your outrage meter is set dangerously low. The $38 is a convenience fee; you'll probably earn more than that in interest if you deposit the tuition money in a money market account and let the automatic deduction service take out the monthly payments. If you can't afford to deposit the money all at once or pay the tuition bill in full, the fee is an irritant, but that still falls far short of a scandal.
Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at firstname.lastname@example.org or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times' Web site at http://www.latimes.com/moneytalk.