Blended families have become significantly more common in recent years. A blended family begins when parents who have children from prior relationships choose to commit themselves to one another. Those who have previously divorced, lost a spouse or had children without marrying have issues to consider when getting married and planning for the future protection of their families.
Estate planning is a smart move for anyone who wants to provide support for their spouses or children in the event of their premature passing. For those with blended family units, estate planning is particularly important. Parents may want to consider establishing trusts as a way of supporting one another while ensuring that their children can still inherit an appropriate amount of property.
How do trusts help blended families?
In a direct inheritance scenario, parents starting blended families often have to compromise on how much support they provide their spouses or what their children inherit. The beneficiaries who they select assume immediate and total control over the assets designated to them as part of their inheritance. When parents establish a trust instead of simply drafting wills, they can provide support for a surviving spouse without depriving their children of their future inheritance rights.
Spouses starting blended families may want to fund a special trust. A qualified terminable interest property trust, or QTIP trust, helps ensure that children receive an inheritance while a surviving spouse also has access to that property. The surviving spouse can retain their possession of the marital home, for example, and they may receive any income generated by trust assets. The assets themselves pass to the surviving children when the surviving spouse dies and no longer requires support from the trust.
Spouses may also want to consider setting up an AB trust, also known as a bypass trust. The spouses plan for two separate trusts. One trust holds the surviving spouse’s property, while the other holds the deceased spouse’s assets. The idea is to protect property for the financial security of the surviving spouse while also establishing a source of ongoing financial support for the children of the deceased spouse.
There may be other types of trusts that could work as well, depending on the unique circumstances of a family. Exploring different estate planning strategies can help people meet the financial needs of their loved ones when they have a complex family structure. Parents starting blended families often need more comprehensive estate plans than parents still married to the other parents of their children.
