New Jersey residents often update their estate plans after big life changes. Getting married and having children are common ones, and it’s imperative to change an estate plan after getting a divorce.
It’s also especially important to update your plan if you have remarried. If you have a blended family, there are specific considerations you should make. You may consider creating a trust.
Spousal lifetime access trusts
In recent years, irrevocable trusts have become more common, as these trusts help one avoid estate or gift taxes.
Often, each spouse is named the beneficiary for the other spouse’s trust. Because this allows a spouse to have access to the other spouse’s trust, they are often referred to as spousal lifetime access trusts or SLATs.
Impact blended families have on SLATs
SLATs have become a common mechanism for married couples, as they fit the current estate planning environment well.
However, despite the benefits SLATs have for married couples, if this is not a spouse’s first marriage, this could present some risks. Specifically, in a blended family situation, there is a risk involved in assigning powers over the trust.
Because of the reciprocal trust doctrine, certain planning and considerations are needed to ensure that the couple’s SLATs differentiate. This doctrine states that if two trusts are too similar, they could be uncrossed.
In other words, the trust a husband set up for his wife might be treated as his trust and vice-versa. This essentially pierces the irrevocable trust, undoing their tax and asset protection.
Thus, when each spouse takes steps to differentiate their trust from the other, this could impact the powers of each spouse as well as the children of a prior marriage.
Estate planning can be a complex and detailed process. Whether you seek to update a current plan, create a trust or have questions about the future impacts on your intended beneficiaries, it is important to obtain legal guidance. This helps ensure you create a secure estate plan and sound trust.