September 29, 2021

Modifying a Trust in a Blended Family

A blended family, i.e. one or both of the spouses have children from a prior relationship, is a variable that is periodically found in trust disputes. One spouse will naturally want to benefit their children to the exclusion of their step-children and vice-versa.

A recent unpublished appellate decision involved such a scenario.

In 2007, a married couple executed a joint trust and funded the home with their primary residence. This couple had no children together, although the husband had two children from a prior relationship and the wife had a child from a prior relationship.

Following the first spouse to die, the marital trust was to be divided into three trusts, Trust A, Trust B and Trust C. This arrangement is typical for a married couple who desire to minimize the estate tax. 

Following the husband's passing in 2016, the wife executed an amendment in 2017 which granted a life estate in the primary residence to her daughter and her husband (the husband's step-daughter and her spouse). The wife later passed away in 2017.

The crux was that Trust A was the only trust that the wife could modify following the husband's passing. Trust B and Trust C were "irrevocable," while Trust A was "revocable." While an irrevocable trust can be modified, a court order is almost invariably needed and the 2017 amendment was procured without a court order.

The trial court found that the wife was duty-bound to allocate the trust assets into the sub-trusts following her husband's passing. At that point, the wife could modify Trust A. However, the 2017 amendment was an attempt to modify the entire 2007 trust, an impermissible modification since the sub-trusts had not been funded yet.

The appellate court affirmed the trial court's decision.

Also worth mentioning is that the author of the 2007 trust testified:

"At the evidentiary hearing, the paralegal who prepared the Trust testified. The paralegal stated he presented an earlier proposed amendment to the Trust purporting to give Bueno a life estate in the residence. Larry refused to sign the amendment, stating it was not his intention to give Bueno a life estate in the residence."

The paralegal's testimony encapsulates the underlying tension occasionaly found in a blended family. The wife was insistent that her daughter, the husband's step-daughter, receive a life estate in the property. Conversely, the husband was unwilling to agree to such an arrangement. Presumably the husband wanted his children to receive the residence not subject to a life estate granted in favor of his step-daughter. These competing interests were the genesis of this lawsuit.

McAbee et al. v. Bueno, San Benito County Superior Court, case #  PR1900008