In a recent letter to MarketWatch’s advice column, Quentin Fottrell addresses a common issue faced by many individuals who find themselves excluded from a loved one’s estate due to a revocable trust. The letter writer explains that their late father mistakenly believed that he had set up an irrevocable trust with his stepmother, but it was actually a revocable trust. Now, the stepmother plans to change the trust so that her son inherits everything, leaving the children of the deceased out of any inheritance.
Fottrell acknowledges that there may be several possibilities in this situation. It is possible that the father set up a revocable trust accidentally, without fully understanding the difference between the two types of trusts. Alternatively, he may have set up a joint trust where only his portion of the assets became irrevocable upon his death. Lastly, the father may have changed his mind at some point and decided to leave his assets to his second wife to distribute as she sees fit.
Regardless of which possibility occurred, the burden of proof falls on the children to contest the terms of the trust in court. This would require the assistance of an attorney and the ability to prove that the trust did not reflect the father’s intentions and that a mistake was made. However, there are certain limitations to consider, such as the statute of limitations in the state where the trust was created.
If the trust was drafted in a way that allows the stepmother to change it entirely and redirect the assets to her children, contesting the trust may be the only recourse. In this case, it would be necessary to argue that the trust should be modified or reformed due to a “mistake” and that it does not reflect the father’s intentions.
Fottrell advises obtaining a copy of the trust so that an attorney can review its terms and determine if it was poorly constructed or if only a share of the assets is revocable. The argument for modifying or reforming the trust would be based on principles of fairness, with the goal of ensuring that the property is distributed as intended by the father.
It is important to note that the stepmother may be legally entitled to change the trust and leave everything to her son. While it may be ethically questionable to cut out the children from their father’s estate, the focus should be on her legal entitlement. If the children are successful in contesting the trust, any assets deposited in a revocable trust would typically receive a step-up in basis, benefiting the stepmother.
Fottrell concludes by acknowledging that this situation is more commonly seen with stepmothers rather than stepfathers. However, disagreements over a parent’s wishes are not limited to gender. Children may also disagree with their father’s choices if they feel he has been too generous to his second spouse.
In the end, Fottrell wishes the letter writer a painless resolution to their trust debacle and encourages readers to reach out with any financial and ethical questions they may have.
