Second Marriage; Estate Planning

By: Robert Moore, Thursday, June 16th, 2022

By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program

Legal Groundwork

Second marriages can present a unique challenge for farm succession planning.  The challenge occurs when one or both spouses have children from a prior marriage.  The spouses often want a plan that will ensure the surviving spouse has adequate income for the remainder of their life but at the death of the surviving spouse they will usually want their assets to go to their children, not their spouse’s children.  So, the issue becomes, how to establish a plan to take care of the surviving spouse while ensuring the deceased spouse’s assets go to their own children?

Consider the following example, a typical second-marriage, farm succession scenario.  Mark and Mindy each have two children from previous marriages.  Mark farmed his whole life and built a large farming operation prior to marrying Mindy.  Mindy is not involved in the farming operation.  Mark’s two children plan to take over the farming operation.  If Mark dies before Mindy, he wants to make sure Mindy has adequate income for the rest of her life.  However, he wants his assets to ultimately go to his children and not Mindy’s children.

Let’s first look at what a bad plan might look like.  If Mark and Mindy do not have an estate plan or a simple estate plan where everything goes to the surviving spouse then to the children, Mindy’s children could end up with some or all of Mark’s assets.  Let’s assume they each have a will that says everything to each other then to the children.  If Mark dies first, all of his assets will go to Mindy.  At that point, Mindy will have total control of the assets and could sell them all or leave them all to her children.  For second marriages, no plan or a simple plan is usually not adequate to meet the goals of a farm succession plan.

The better plan is to use a trust.  The trust can hold the deceased spouse’s assets in trust for the surviving spouse’s life, thus providing income.  Then, at the surviving spouse’s death, the assets are distributed to the deceased spouse’s children.  The surviving spouse never has ownership of the deceased spouse’s trust assets so the assets are never in danger of ending up with the surviving spouse’s children.

Using the example above, Mark establishes a trust with the following terms: “Upon my death, my assets shall be held in trust for the life of Mindy.  While held in trust for Mindy, my Trustee shall distribute all income to Mindy.  Upon the death of Mindy, my Trustee shall distribute the assets to my children.”  This trust will provide income to Mindy but ultimately distribute the assets to Mark’s children.

Sometimes we may want some assets to go directly to the deceased spouse’s children at death and some held in trust.  This is very common for farm plans.  When children will be taking over the farming operation, we may not want to tie up the operating assets in trust but instead have those go directly to the farming children.  To implement this plan, the trust may have these provisions: “Upon my death, my Trustee shall distribute all my farm machinery, grain, crops and other farm operating assets to my children.  The remainder of my assets, including my farmland, shall be held in trust for Mindy.  While held in trust for Mindy, my Trustee shall distribute all income to Mindy.  My Trustee shall offer to lease the farmland to my children for 80% of the county cash rent average.  Upon the death of Mindy, my Trustee shall distribute all remaining trust assets to my children.”

As the examples show, trusts can be very effective at establishing plans for second marriages.  The surviving spouse can be provided with adequate income while protecting the assets for the deceased spouse’s children.  A simple plan or no plan can result in some or all of the deceased spouse’s assets being inherited by the other spouse’s children.  A trust can be designed with a great deal of flexibility and creativity. Farmer’s in second marriages should consult with legal counsel to determine if a trust may be best for their succession plan.

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