My husband and I signed a prenuptial agreement before we got married. This is my second marriage, his first. He has no children. I have a son who was an adult when we married, so there was no need for my now husband to adopt him. My husband and I live in a home that I purchased and maintain on my separate property.
I was careful to pay all mortgage and maintenance costs myself to ensure there was no doubt that this was my separate property. After I die, my trust dictates that my husband receives the house – which is currently worth $1.2 million net after deducting the outstanding mortgage from its market value – and that my son receives the remainder of my assets , which amount to approximately $1.2 million.
My husband will also receive monthly payments from my pension as a survivor and beneficiary, which will more than cover the monthly mortgage payments. So my husband would, in effect, pay the mortgage with the funds that I make available even after my death. I would like the house to be returned to my son after my husband’s death.
Not a blood relative
After all, he is my son’s stepfather, but he is not his blood relative. Would the house be considered an inheritance? If my son sold the house, would the costs increase just as if I had left the house to him outright? Or would my husband leaving the house to my son be like a stranger bequeathing the house to him?
I know I can rewrite my trust to give my husband use of the house while he lives and then pass it to my son upon his death, but this forces my husband to live in the house until he dies. He may want to move elsewhere after he retires. What I want to avoid is him leaving the house with the wife he will marry after my passing.
If I rewrite my trust to allow my husband to live in the house until he dies, at which time it passes to my son, what are his options and what happens to the house if he chooses to go and live in another state? Can he rent the house to have an income to pay for accommodation wherever he goes? I suppose I could stipulate it in my trust.
I would appreciate any advice you have on this topic.
See also: My brother lives in our parents’ house, which we will inherit 50/50. I want to keep it in the family for my kids. How do I protect my interests?
“Trusts and wills cannot be all things to all people.”
MarketWatch illustration
Dear wife and mother,
Alas, you are trying to be too many things to too many people. Set your estate planning goals in order of priority. You will have to make some sort of compromise along the way, and from what you say in your letter, your child is your #1 priority inheritance-wise, although you want to make sure your husband has a roof over his head.
You’ll go to great lengths to make sure your $1.2 million house isn’t commingled with your marital assets — in case you get divorced — and yet you still plan to leave it to your second husband in your will. Ultimately, you want your child to inherit your entire estate, while also ensuring that your second husband lives a financially independent life after you’re gone.
To do this, you need to cut yourself some slack. Situations change, relationships fall apart, people get married, and these spouses often come with their own power and influence. Your husband and son may argue. He or his new spouse may be going through difficult times and need money for long-term care or medical expenses. That house could become a lucrative source of income.
Trusts and wills cannot be all things to all people. Allow your husband to live in your home for the rest of his life as a life tenant, making sure to specify that he will be responsible for the property taxes and maintenance of the property. But you are asking for trouble by allowing your husband to have his cake and eat it, by allowing him to live in the house and sell it.
What if you left your house to your husband, with the hope/promise that he will keep his word and leave it to your son after he dies? Stepchildren are not normally considered legal heirs under the law unless they are formally adopted or included in beneficiary designations, trusts, gifts, or last wills and testaments. Contact a tax attorney in your state.
Increase the base
But who qualifies for a complicated base pass. “An heir does not have to be a biological descendant to receive a step-up in basis,” says S. Michelle Jann, director of estate planning at Goelzer Wealth Management. “The property in question must be included as part of the deceased’s estate. Qualifying for the basic step-up has nothing to do with the individual relationship.”
You would have to be named in the will, or in a revocable trust, or through a transfer-on-death deed to inherit the property, Jann adds. If you inherited the property via one of these methods, you would receive the step-up in basis.
“If no one has been named as the legal heir and the house is in the process of probate, then the stepchild may not be determined to be the legal heir during the probate process,” he added. “If the probate courts decide, they will follow the laws of intestate succession which would follow bloodlines and likely not include the stepchild. The individual or individuals chosen by the probate court would receive a step-up in basis. “
Incidentally, there are irregularities in the step-up rule for married couples, depending on where they live. For example, if you owned the house jointly with your second husband, he would receive a base increase, but probably only on half the value of the house, Jann says. However, if you lived in a community property state, you would receive a full basis increase.
This all assumes that you predeceased your husband. In reality, your husband is more likely to die before you. According to this 200-year global study published in BMJ Open, an open access peer-reviewed medical journal, between 25% and 50% of men outlive women. In fact, women tend to outlive men by five to six years, Scientific American reports.
Create a rock-solid estate plan that needs no wiggle room.
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.
Watch the private Facebook Moneyist group, where we seek answers to life’s thorniest financial problems. Post your questions, tell me what you want to know more about, or weigh in on Moneyist’s latest columns.
The Moneyist regrets that it cannot answer questions individually.
Previous articles by Quentin Fottrell:
My parents want to pay off my $200,000 mortgage and move into my rental house. They say I’ll owe my sister $100,000. It’s right?
“I hate the 9 to 5 routine”: I want more time with my newborn son. Should I give up my job and dip into my six-figure trust fund?