Dear Len & Rosie,
My husband passed away recently after a courageous 19-year battle with prostate cancer. We made a revocable trust five years ago. The trust leaves everything to my husband's son and grandson, with a larger share passing to the son. I have no children of my own. I would like to change the beneficiaries to leave everything to my stepson and grandson equally. Do I need to make up another revocable trust in my name, now that my dear husband is gone and designate the two of them jointly as primary beneficiaries? Also, will I get the stepped up value on my husband's half the property as of his date of death?
Keep in mind that you really need to see an attorney to do all of this. Your attorney will also be able to identify which assets receive a cost basis adjustment as a result of your husband's death - essentially, all of the community property and his separate property - and help you obtain date-of-death valuations and appraisals to establish the new basis.
You have good questions, but we cannot answer them entirely without reviewing your trust first. Your trust may be an ordinary revocable trust that allows you to make whatever changes you want, or it could be an A/B trust that you may amend only with respect to your share of the trust assets. So let's have a look.
First, read the provision of the trust regarding trust amendments. It should spell out the extent to which you, as the surviving spouse, may amend or revoke the trust. If the trust says you can amend the entire trust, or the entire trust except for a "disclaimer" trust, then you should be OK. See an attorney and amend the trust to make whatever changes you want. You shouldn't need a new trust document unless the attorney finds something wrong with the one you have.
If the trust includes references to a "exemption" or "bypass" or "credit shelter" trust, it's likely to be an A/B trust. These trusts are designed to help reduce or avoid federal estate tax. They work by putting into an irrevocable trust, the "B" trust, the share of the trust assets owned by the deceased spouse up to the amount that may pass free of federal estate tax in the year of the deceased spouse's death. The B trust is never owned outright by the surviving spouse and isn't subject to estate tax on the surviving spouse's death. As the surviving spouse, you should get all of the income earned by the B trust and you can also dip into the B trust principal if you spend most of your own assets first.
If your trust is an A/B trust, it will be more complicated, but you can still accomplish your goal. You will have to divide the trust assets between the A trust and the B trust, and then you can amend the A trust to leave a larger share to the grandson and make the inheritance between the step-son and grandson equal, more or less.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, 3-4 PM, on KKSF Newstalk 910 AM.