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Estate Planning for Blended Families

Attorneys face unique challenges when working with blended families. When planning for blended families, attorneys must take into account property that each spouse owns from their prior marriages as well as property that is jointly owned by the spouses in the current marriage. This requires an understanding of the nuances of each case and special tools to address client needs.

Unique considerations in planning for blended families

Blended families are a growing demographic. According to a Pew Research report, 40% of marriages include a spouse that has been previously married, and this statistic is on the rise. Attorneys must know how to plan for blended families in order to provide full estate planning services.

Plans for blended families must account for the family structure and for assets that might be scattered among individuals. Because each spouse has both separate and marital property, traditional planning techniques like joint revocable living trusts may be difficult to design. Joint RLTs can be practically impossible to draft in a way that takes into account the separate and joint property of both spouses and children from prior marriages.

As an alternative to a joint RLT, attorneys should consider separate RLTs for each spouse. But this technique has its own drawbacks, especially in community property states that give each spouse an interest in property acquired during the marriage. In this scenario, severing assets with separate RLTs can be challenging. It can also result in loss of favorable tax benefits.

Although estate planning for blended families comes with specific challenges, there are planning strategies that attorneys can use to meet the needs of this demographic. One popular technique is to combine the advantages of a joint and separate trusts using a joint RLT pour-over strategy.

How to use the joint RLT pour-over strategy

A joint RLT pour-over can provide the best of both worlds for blended families. It integrates individual and joint planning strategies. This strategy contains three separate trust agreements: a joint RLT for married couples and a separate RLT for each spouse.

Each spouse has a separate RLT. The separate RLTs are designed to accomplish the planning goals of each spouse. These goals may differ given that each spouse may have separate property and children from previous marriages.

The joint RLT is straightforward and is meant to protect property owned as a couple. It usually names each spouse as a settlor and trustee for as long as they live. Either spouse can act as trustee in the event of their spouse’s death or incapacity. After the death of one spouse, marital property is equally divided and “poured over” into the surviving spouse’s individual trust.

This plan will preserve the assets that each spouse acquired apart from their partner, provide support for the surviving spouse, and ensure that marital property is divided appropriately among the couple’s children.

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