As Freud observed long ago (and many songwriters remind us to this day), some of the greatest challenges people face involve love and money. When trusts intersect with plans for marriage (or remarriage), these challenges come together into one. It is no surprise that the intersection of trusts and marriage is one of the trickiest points to navigate in the trustscape.
Marriage is something that changes and evolves throughout an individual's and a family's life. So we will take up this topic from several different angles. (And by “marriage” here we mean to include any committed, long-term relationship.) First, we will consider how to manage the place of trusts as you enter into marriage. Then, we will turn to how couples can discuss trusts in their marriage, and more specifically to the question of when and how to tell beneficiaries about the existence of a trust. Finally, we will look at the thorny topic of trusts in a second marriage or beyond. Throughout, we will also be cognizant of the part that fiscal inequality between partners—especially when the woman has more wealth than the man—plays in managing the place of trusts in a relationship.
Prenups are typically objects of dread to all involved. They evoke images of overly protective parents, infantilized children, gold-digging fiancés, a black mark on a new relationship, mistrust where there should be love, and suspicion where there should be hope—in short, a whole panoply of fears.
It does not have to be so. As we describe more fully in The Cycle of the Gift, thought and care can turn the prenup process from a nightmare into a ritual of welcome, part of the creation of the new couple and the new family. We will summarize the ways to do so below. But, first, it is crucial to recognize that trusts can play a large part in making that process positive, rather than adding to its negativity.
The reason is that if the trusts are structured correctly, the trust assets may not be part of the to-be-formed “marital estate” belonging to the new couple. In many states and countries, the trust assets would simply be “off the table” with regard to a possible divorce or dissolution, and so would not have to be the subject of negotiation in the prenup process.1 They must be disclosed, both for the integrity of that process and, more importantly, for the education of the beneficiary and his or her potential life partner. But disclosure does not equal access, much less distribution. The trust assets are part of the landscape for the new family, but not part of the ground that belongs to them or that they might one day have to divide.
The presence of trusts prior to the prenup process can, as a result, provide the marrying couple some relief. We have heard many beneficiaries say that they felt relieved that their parents had put assets into trust, since it removed any decision about those assets from their—the young family members'—hands. As one fiancée said, “I didn't feel like I was telling my boyfriend that I didn't want him to have this property. I was able to say that the decision was made long before he came along.” Likewise, a fiancé once told us, “I was glad to learn that her assets were in trust. That was her dad and mom's gift to her. It had nothing to do with me. She and I could then make our life together and I could make my gift to her myself.” It also helps to frame the use of trusts in terms of the family's values and history rather than as part of a plan to protect against this or that spouse. For example, some families have explained, “This is simply what our family does: it's not about you.” Or similarly, “Our family wealth (or business) is a family asset that affects many different people and is part of our legacy. That's why we put these assets into trust.”
These examples also show how often trusts are part of the larger dynamic of fiscal inequality. Fiscal inequality in a marriage is a big topic, which goes beyond the scope of this chapter. It is also a topic that is becoming more and more common, as parents make lifetime gifts to their children and as women, in particular, find themselves in possession of more and more wealth. The key to managing such inequality is empathy for the other party and for oneself. Recognizing the challenge that inequality poses within a relationship, for both parties, is the start to their managing that inequality. From that empathy flows the ability to communicate and to talk about what the difference means for each of them. Such differences become much more manageable when each party is clear about his or her own feelings and has put those feelings “on the table.”
As mentioned earlier, communication is also crucial for managing the prenup process as a whole, with or without the presence of trusts. Condensed to its simplest form, that communication process involves some or all of these steps:
As with any process of communication, some people are more adept at it than others. In particular, it may be challenging for marriage & family lawyers who look at the prenup process through an adversarial lens to help family members use the pre-nup process in a positive way. In such situations we have seen families make good use of “translators”: people with expertise in trusts and family dynamics who have been able to help the family clarify their positive intent and then “translate” that intent to both sets of marriage & family lawyers. This “translation” can save a great deal in hurt feelings, anxiety, and legal fees.
The prenup process is never easy, but if pursued with goodwill, it can produce much better results than bottling up the anxiety and then posing the demand for a prenup shortly before the nuptials. Indeed, when motivated by positive purpose (rather than as an expression of fear), the prenup process can serve as part of “onboarding” of the new spouse into the family rather than seem to be a locked door or sign of suspicion at the beginning of the marriage. Again, our main point here is that the presence of trusts—far from making the matter more difficult—can actually ease the process and help put the focus less on property and more on the happy couple and their new marriage.
There are many ways that trusts can impact an established marriage. For example, couples, one or both of whom are beneficiaries of family trusts, may revisit the question of how much or how little to integrate those trusts into their marriage. This work amounts to revisiting and perhaps renegotiating the prenup process in the context of an established marriage. Also, couples who are setting up their own family trusts need to decide how much of their property to put in trust, for whom, and under what terms of distribution. Even more basically, they need to decide how to decide these matters: will both of them have an equal say, or will the spouse who has created the wealth take the lead? In the heat of creating wealth and raising children, many couples “default” to the latter approach, leaving the wealth-creating spouse (often, but not always, the husband) to work out the “legal details” with little input from the other spouse. If that happens, they may want to revisit those details in later years, when they have more time and experience to reflect on their prior choices.
For the sake of brevity, we focus here on the challenge that married couples typically struggle with most when it comes to trusts that they have established during their marriage: the question of what to tell their growing children about the trusts and when to tell it.
This, too, is a topic that we take up more fully in The Cycle of the Gift. Here, we condense the material to its essence, while adding considerations specific to trusts as distinct from family wealth more generally.
To answer this question, we recommend that couples take the approach first recommended by our friend and colleague Charles Collier, former senior philanthropic adviser at Harvard University (and also described in Chapter 7 in the section on trust creators). Charlie called this approach the “three-step process.” It has helped countless couples navigate difficult decisions; it amounts to the following:
Typically, we see couples skip steps 1 and 2 and try to move directly to step 3, especially by trying to answer the “when” and “how” questions. That is why those questions often feel so insuperable: because the members of the couple may not know their own hearts, much less what's going on in the other's heart and mind. In contrast, if a couple devotes time and energy to steps 1 and 2, step 3 moves relatively quickly and smoothly.
Of course, there are at least two sides to every communication. The parents are one side. Children are the other. And sometimes parents have good reasons for doubting their children's ability to hear, understand, and integrate, in a healthy way, information about family trusts. The concerns about trusts' demotivating children's work ethic are real.
The answer to such concerns, which are very common, is to seek to understand each child as an individual. Some children are almost naturally responsible and self-directed: they may be able to understand and integrate information about trusts in a healthy fashion even when they are in their late teens. Other children may find it difficult to integrate such information even in their late 20s or 30s. Most children are probably somewhere in between.
Parents often take one of two approaches to this situation. The first is secrecy. They withhold information about the trusts as long as possible, perhaps even long after their adult children are legally entitled to receive this information. Or parents establish their trusts in jurisdictions that do not require notifying adult beneficiaries of the trust's existence. As tempting as it is, we have rarely seen this approach work out well. It creates a large opportunity cost: the time spent keeping things secret could have been used to educate the beneficiary in the ways that we discuss elsewhere in this book. It also almost always breeds resentment. The truth will out at some point. The adult beneficiary will then tally up all the ways that knowing the truth earlier could have influenced his or her life choices. Whether or not his or her retrospective assessment is accurate, the resentment at being treated like an irresponsible child will be real and damaging.
The other customary approach is to punt the entire discussion and place it in the hands of an “expert,” usually an officer of the institutional trustee (if there is one) or the professional trustee (such as an attorney). This occasion usually comes out of the blue for the beneficiary, creating anxiety, which is hardly a good foundation for learning. The discussion also tends to be technical and one-sided. Beneficiaries often leave such meetings feeling bewildered and even ashamed. The result may be that the entire subject is dropped for years or decades more. That may be the result that some parents wish for, but, again, it sets up a dynamic that usually ends in poorly educated, poorly prepared beneficiaries. As the old adage says, “Failure to prepare is preparing to fail.” With this poor “preparation,” it should be no surprise that so many beneficiaries do not succeed to manage their trusts well.
Instead, as we described in Chapter 7, we recommend tailoring the communication to beneficiaries based on who those beneficiaries are. Sometimes that process may involve the step of having a third party actually interview each adult beneficiary to learn what his or her level of knowledge is, how prepared each person is to learn about the trust, and what questions he or she has about the topic. Such interviews can be a great way to prepare beneficiaries to get the most out of the process as well as to prepare parents and their advisers to teach beneficiaries most effectively. These interviews can also help parents decide whether to share information with their children as a group or as individuals, with their spouses (if the children are married) or without.
Whatever the communication process ends up looking like for you—whether it is as simple as a few one-on-one conversations or as involved as the series of interviews and planning sketched out above—we return to this fundamental principle: seek to understand. If you use each interaction with your children as a chance to learn about who they are, what they know, what they would like to know, and how well they are likely to integrate that knowledge, then the “what,” the “when,” and the “how” of your communication will likely flow quite naturally.2
There is nothing as complex in family life as blended families, whether that blending comes about after the death of a prior spouse or through divorce. The presence of trusts within the family adds complexity upon this complexity. Managing the dynamics of trusts and remarriage requires great delicacy, patience, and empathy by and for all parties.
There are many permutations that this complexity can take. One, for example, is when a spouse dies after setting up a “marital trust” for his or her surviving spouse, and then that surviving spouse remarries. This situation bears some resemblance to the situation of young people marrying for the first time with family trusts in the background. It can cause some anxiety in the remarrying spouse and his or her new companion. But it can also be a source of relief: the marital trust established by the deceased spouse likely has clear terms about distribution and use of the assets. It is probably “off the table” in the new marriage. This status may help the new couple create their own economic world, with as few feelings of guilt or resentment about the deceased spouse's role in their economic life as possible.
Marital trusts also play a role in perhaps the most common and most difficult situation involving trusts and remarriage: when a person with children remarries and creates a marital trust for his or her new spouse. The situation is made all the more challenging if the new spouse is much younger than the trust creator. Sometimes that new spouse and the children from the prior marriage may even be close to the same ages.
In such cases, it is natural for the children from the first marriage to wonder about the new spouse's motives: is he or she just marrying Mom or Dad for the money? It is also natural for the children from the first marriage to worry about the consequences for themselves and their children: Will the wealth outlive the new spouse? Will there be anything left for us? Will we have to wait all our lives? These are not particularly noble concerns, but they are common ones.
Again, these are situations of great complexity, and simple answers would not do them justice. However, in working with many families, we have observed one rule: it is generally much better to address these matters while you are alive than to leave them to be hashed out between your adult children and your second wife or husband after you are dead.
The reason is simple: while you are alive, you and your new spouse can formulate your reasons for establishing the marital trust and communicate those reasons to all interested parties. Children from a prior marriage may be pleased for you, or they may be resentful and angry. That is their choice. But at least they will be informed. They will know your thoughts and feelings. There will be no room for complaining later about what Dad or Mom “would have wanted” or “really thought.”
The three-step process of communication described earlier is the same one that we recommend spouses in a second marriage use to clarify their thoughts and feelings about communicating about trusts with children from prior marriages. This process would also cover thinking about whether you want to leave assets in trust for children from your spouse's prior marriage, which sometimes happens in second marriages where there is considerable fiscal inequality between the partners. Whatever you decide in such situations, the key is that you and your spouse clarify your own individual thoughts (step 1), share those thoughts honestly with each other (step 2), and then decide what you are going to do or say (step 3).
This process is much easier said than done. It may be important, for example, to incorporate a values-clarification exercise as part of steps 1 and 2. Such an exercise would allow the two spouses to clarify what matters most to each of one of them and what values they hold in common. Recognition of their differences and their common ground would then provide a firmer basis for thinking through actions and communication.
This entire process will take time, especially if there is lingering anger and resentment within the family due to earlier conflict or divorce. The situation is particularly difficult if you fear that communicating your wishes regarding your new spouse to your adult children will cause them to “hold hostage” your relationship with your grandchildren. This is a terrible situation for a grandparent to be in. In such cases, it is all the more important to talk through the situation with your new spouse, so that you both are clear about the pros and cons of different approaches, the benefits, and the likely costs. Sometimes one must let the proverbial chips fall where they may, but only when they must. If that is the case, it is crucial that the couple be clear about that course of action and that they agree on the reasons for proceeding—or for not proceeding—with communication.
Again, love (and especially parental love) often brings us our greatest joys and greatest pains, and money can serve to intensify both. There are no easy answers for navigating the role of trusts within a marriage. However, we have found that when couples, young or old, take the time to understand themselves, each other, and their children, the steps that they take, even if sometimes painful, generally produce a more positive result.