I have a problem. Actually, my brother-in-law has a problem. My wife’s father was a prudent businessman and investor. He amassed what some would consider a sizable estate. It includes a family business (which I run) and, when liquidated in future years, will be worth well over $2 million. My father-in-law set up his estate with the idea that laws would change and it could be taxable. He also set up an irrevocable trust to hold most of his assets upon his passing.
My brother-in-law (his son) led a checkered youth — I will not go into detail — but there was incarceration and bad blood for a while. Because of his propensity to spend everything he put his hands on, the portion of his inheritance will remain in the trust for perpetuity and will be managed by the family attorney. As time passed, my brother-in-law matured, got on the right path, married, built a house and has run a successful business for the last 15 years.
My father-in-law slipped into dementia. The dementia lasted for many years, but during that time the relationship was repaired and they had a lot of good times together. Also, during that time my father-in-law made quite a few business and investment mistakes before he passed away; some were recoverable, some were not.
One thing he did not do was change his will. I worked with my father-in-law very closely for many years. I know how happy he was with his son’s change and that they were able to have a relationship. I firmly believe that had he been in his right mind, he would have changed the construct of the trust.
I have asked the family attorney if there is anything that my brother-in-law can do have greater access to his father’s inheritance forever and ever, and he has evaded the question. There were hurt feelings over this, but my brother-in-law has accepted his father’s wishes and is not seeking to challenge any aspect of the trust.
My questions are these: Does he have any recourse to challenge the trust and is his wife eligible to the proceeds should he pre-decease her?
The phrase “checkered youth” leaves me with so many questions, but I agree. Let’s leave the past in the past.
Your letter reminds me of a storyline in the 1980s soap opera “Dynasty.” There was a constant power struggle between Blake Carrington, the patriarch, his son Adam and his son-in-law Jeff Colby. Adam had a checkered past, too: He was always up to no good, re-decorating Jeff’s office with toxic paint to drive him insane and tricking his father into signing away power of attorney. And that was on a good day. Blake cut Adam out of his will and reinstated him more times than I’ve had hot dinners. It just made Adam even more dastardly. Your father-in-law’s solution was more compassionate.
You seem genuinely relieved that your brother-in-law has gotten his life back on track, and I’m sure your wife is relieved that he has found security and happiness. That said, there’s a missing link in your letter. You say that your brother-in-law has a problem, on the one hand, and accepts his father’s wishes, on the other. But your letter indicates that you may be the one with a problem, especially if your brother-in-law challenges your father-in-law’s will and undoes the irrevocable trust. His gain could be your loss, if he were able to access all his inheritance and decide to become more involved in the family business.
This potential reversal of fortune might be the reason why your family’s attorney won’t discuss your brother-in-law’s situation with anyone other than him. He may question your motives and consider your brother-in-law’s future a confidential matter or something that should not be discussed behind his back. Another issue: By bringing this subject up with the attorney, you may inadvertently set in motion a series of events that could lead to your brother-in-law deciding to challenge the irrevocable trust. A psychic might say: “You have now put this into the universe.” The Moneyologist says: “People talk.”
And so to your first question: Irrevocable trusts are revocable. They can be challenged by filing a lawsuit in probate court in the state where the trust was created; the plaintiff — in this case, your brother-in-law — must typically have an interest in the outcome of the case. Issues for overturning the trust might include undue influence or mental competence of the person who set it up, or if the language of the trust was unclear or contained inadequate number of signatures to satisfy the requirements of that particular state. Witnesses would help, too. From what you say, you could be of great help to your brother-in-law.
As to your somewhat macabre — if practical — second question: Who inherits the money left in the trust for your brother-in-law should he pre-decease all of you? It depends on the terms of the trust. Your brother-in-law’s wife or children could be listed as “alternate beneficiaries” or anyone else for that matter and, if they are, they will stand to inherit your brother-in-law’s proceeds. If there are no alternate beneficiaries mentioned, the trust will likely revert to the other named parties (in this case, your wife, or anyone else named on the trust). And then you will be a very rich man. Disclaimer: Please disregard my earlier reference to toxic paint.
Do you have questions about inheritance, tipping, weddings, regifting or any tricky money issues relating to family and friends? Send them to MarketWatch’s Moneyologist.