How do ensure the children get the house if one spouse dies and the other remarries?

This is an interesting question from a reader. How do you ensure that the children get the house if one spouse dies and the other remarries? It's a frequent question, so I thought many readers would like to discuss it.

"Regarding wills. We are married with two kids. We jointly own a home. Say one spouse passes away, and surviving spouse enters into second marriage. What can I proactively do now to ensure that the home will go to the kids."

This is a discussion I have often with clients, especially when the children are young. There is a genuine concern that if one spouse dies, the other will re-marry and potentially leave everything to their new spouse. This would leave the kids out in the cold. 

Many couples make "mirror" wills in which they leave everything to each other, and on the death of both of them, leave everything to the children. If one dies, the other is legally allowed to change the will and leave the estate to whomever he or she wishes. There is no legal obligation to give the estate to the children just because it was said in a mirror will. While some couples are prepared to take the leap of faith that the other will look after the children, others are not.

The way things are set up right now, according to your note, the home is going to go to the surviving joint owner. Even if you say in your will that you want it to go to the children, it won't. This is the legal arrangement known as "joint ownership with right of survivorship".

There are different ways to arrange your legal and financial affairs. In this case, you have specifically mentioned the house so we'll focus on that. For example, you could set up a will in which you leave the house in a trust for your children. But - and this is a BIG one - you have to balance off that goal with your other goals in life. In order for you to leave the house in a trust in your will, it has to belong to you alone. That's easy enough to arrange if your spouse agrees, but is it a good idea? Is the goal of leaving the house to the kids a bigger goal than protecting each other if one dies? Would your spouse even agree to the arrangement knowing that he or she could lose the house on your passing or on divorce? Would your bank allow it if both of you are on the mortgage? Are there business or creditor reasons for not having the house in just one name?

There's more to think about than just one goal. Everything has to work together. 

At this point in the discussion, we often look at other solutions. One is a mutual will. This is a specific sort of will in which two people set up their mirror wills as mentioned above, but with a difference. In a mutual will, there is a specific paragraph that says both parties agree never to change their wills without the permission of the other. Now, on the face of it, that might seem to solve the problem. However, what if one of you does die and does remarry? Now you have a will that leaves everything to your children and nothing to your new spouse. Don't forget we have dependent relief laws that require us to support our spouses in our wills. This could very easily end up in court.

Mutual wills can be done, but they seriously restrict your future ability to change your will to meet changing circumstances. They have to be drafted extremely carefully and only after a thorough discussion. I rarely do them at all.

Another possibility is to set up a trust while you and your spouse are living, as opposed to setting up a trust in your will. We call this a family trust. You could set up a trust to hold the house (and other assets) and name your children among the beneficiaries. Again, this idea won't work for everyone and may well restrict your ability to deal with your assets while you are alive. There are usually also tax consequences when assets are moved into a trust. You also have to pay a lawyer to draft the trust agreement

Another solution might be to change your focus away from leaving the children the home. Is the home something that simply cannot be replaced, such as a homestead that has been passed down through generations? If not, consider leaving the children some other inheritance, such as money. This can easily be done by buying a life insurance policy that names your children as beneficiaries, or by setting up a bank account specifically for your children. 

Might I also take this opportunity to remind you that when your children are adults, they will not all live in the home. It is extremely difficult for siblings to deal with a home that is left to all of them. Even in families where people get along, it's a punishment. I always tell my clients that only the parents who really hate their children leave them all the family home together. 

You will note that I have not suggested putting the children's names on the home as joint owners. That's because it's usually a bad idea. Not always, but almost always. If you add a child's name to your home (and the child has to be an adult for you to do this) then you risk losing the home if the child gets divorced, loses his/her business, or is sued. You also cannot sell or mortgage your home without the child's consent.

I hope what you'll get out of this post is that there are legal arrangements that can be made, but nothing happens in isolation. Everything - your will, joint ownerships, life insurance, tax - has to work together and focusing too closely on one goal can put other goals in jeopardy.