A common provision in wills and trusts, where one of the couple in a second marriage owns the marital home, goes something like this “My surviving spouse shall have the right to reside in the home for so long as he/she desires, provided he/she pays all taxes and insurance premiums thereon and shall maintain the premises in good order and repair. Upon his/her vacating the premises, the same shall be sold and the net sale proceeds distributed to my children in equal shares, per stirpes.”
Sounds fair, doesn’t it? After all, the surviving husband or wife gets to live in the house as long as they like, rent-free, subject only to payment of the carrying charges. In practice, however, the plan carries a significant defect. It puts the surviving spouse in a “Catch 22”. If they find the house is too large, too difficult or too expensive to maintain they have the choice to leave, but then face the prospect of a significant expense to purchase another residence out of their own funds or, in the alternative, the cost of rental which may add thousands of dollars in monthly outlay.
For this reason, we recommend that the surviving spouse gets not only the use and enjoyment of the home for life, but also the use and enjoyment of the proceeds of sale of the home for life, to either purchase a smaller home or condo or use the income from the sale of the home to pay for a rental apartment. In our view, the children of the previous marriage lose nothing. The surviving spouse could have lived in the house for life so why not give him or her the flexibility to trade down as they get older? If there are excess sale proceeds, these can be invested to provide additional income to the surviving spouse. The co-trustee, perhaps the attorney as previously suggested in these pages, makes sure the funds stay intact for the deceased spouse’s children after the second spouse dies.