More and more clients come to me with a blended family. The husband and wife have children together, but the husband also has children from a previous relationship, and the wife has her own children from a previous relationship. That gets complicated, so here are some of the possible solutions.
The problem with one shared trust
One solution is a living trust that holds all of the assets, which we can call the Smith Family Trust. Say the husband has three children from a previous relationship and the wife has two. If the husband passes away first, everything is with the wife. His children are now waiting to see what happens.
What if the wife decides to change the Smith Family Trust? Maybe she decides she does not like those children. Maybe someone new enters her life, a new husband or a boyfriend, and gets her ear. It could even be her own children who get her ear, and she decides her late husband's children should not get anything anymore. That is entirely possible.
When I sit down with a husband and wife, I tell them that either they are comfortable with that or they are not. A lot of couples say that if the surviving spouse wants to change everything, so be it. Other clients tell me that does not sound okay. For them there are other options.
Option 1: Lock the trust when the first spouse dies
The trust can say that when the first spouse dies, the surviving spouse cannot make any changes. Even if someone pressures her, she cannot legally change the trust. It splits the way she and her husband originally designed it.
Option 2: Split the trust into two parts
When the first spouse dies, the trust splits into two parts. The split can be any percentage, but it is often 50/50. If there is $100 in the trust, $50 goes to each side.
The "B" side (the decedent's trust)
cannot be changed. It distributes the way the husband and wife originally designed it.
The "A" side (the survivor's trust)
is the survivor's to use as he or she wants.
This is an A/B split.
Option 3: Name a co-trustee
Another person can serve as co-trustee with the surviving spouse. For example, one of the children from the decedent's side of the family can serve as co-trustee and make sure the surviving spouse honors the original agreement.
Have a plan
Things can get dicey in a blended marriage. That is why it is a good idea to sit down with an estate planning attorney and map out a plan. It is called estate planning for a reason, and having a plan is better than having no plan at all. The children on both sides of the marriage will appreciate the time you took to protect everyone involved. Please feel free to call me and set up an appointment if you would like to talk about your estate plan.