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Trust Law/Level III · Family trusts/3.3 Couples and blended families/Lesson 3

Blended families and second marriages

Balancing support for a new spouse with security for children from a previous marriage.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. A premarital or marital agreement can waive the elective share cheaply (UPC §2-213). Catch: it fails if signed involuntarily, or if unconscionable without fair disclosure; ERISA survivor rights need consent after marriage (Treas. Reg. §1.401(a)-20 Q&A-28).
  2. Provide for children of an earlier marriage by naming them, or their trust, as life insurance beneficiaries on the insurer’s free form. Catch: UPC §2-205 counts owned-policy proceeds toward the elective share, while Florida counts only cash surrender value.
  3. A QTIP trust pays the spouse all income for life and saves principal for the children (IRC §2056(b)(7)); an independent co-trustee eases conflicts. Catch: trustees must act impartially (UTC §803), and professional fees vary widely.
  4. Moving assets into a trust does not defeat the spouse’s claim: Florida’s 30% elective share reaches revocable-trust and POD property (Statutes §732.2065, §732.2035). Catch: plan around the share openly rather than through transfers that will be pulled back.

MaterialsA list of all assets owned individually and jointly by the coupleThe specific state statute governing elective share rights (e.g., UPC §2-202 or state equivalent)A draft prenuptial agreement if one exists, or notes on why none was signedThe current beneficiary designations on life insurance policies

Wonder

  1. What happens to my house if I die and my new spouse wants to keep it?
  2. How can I ensure my children from a first marriage inherit something without breaking my new partner’s heart?
  3. Does putting assets in a trust stop my surviving spouse from claiming their legal share?

Explore

  1. The core tension in blended families is between providing for a current spouse and preserving property for children from an earlier relationship. Without a will, state intestacy rules usually give the surviving spouse a large share, and in many US states a spouse can claim an elective share whatever the will says. Under Uniform Probate Code §2-202 (as revised in 2008), that share is 50% of the ‘marital-property portion’ of the ‘augmented estate’, a portion that rises with the length of the marriage, from 3% under one year to 100% after 15 years. Many states use their own rules, often a fixed fraction, and most community property states have no elective share. Check your state’s statute.
  2. A qualified terminable interest property (QTIP) trust, under Internal Revenue Code §2056(b)(7), is one tool used here. It pays the surviving spouse all the income for life while letting the first spouse choose who receives the principal after the survivor’s death. The surviving spouse cannot change those beneficiaries unless the document allows it. It can qualify for the federal estate tax marital deduction while, subject to any principal the trust lets the trustee pay to the spouse, passing what remains to heirs such as children from a prior marriage.
  3. Under the UPC, the augmented estate combines the probate estate with many non-probate transfers, such as joint accounts, payable-on-death accounts, revocable trusts and life insurance the decedent owned, and also counts the surviving spouse’s own property. This stops a spouse being disinherited simply by moving assets outside the will. Florida, for example, gives a surviving spouse 30% of the ‘elective estate’ (Florida Statutes §732.2065), which includes revocable trust property and payable-on-death accounts but only the cash surrender value of life insurance (§732.2035). So placing property in a trust often does not remove it from a spousal claim.
  4. Prenuptial agreements can waive or modify elective share rights. Under UPC §2-213, a waiver is not enforceable if the surviving spouse proves it was not signed voluntarily, or that it was unconscionable when signed and the spouse had no fair disclosure of the other’s property and debts, did not waive disclosure in writing, and did not otherwise know of them. States vary. A premarital agreement also cannot by itself waive a spouse’s federal survivor rights in many employer retirement plans; under Treasury Regulation §1.401(a)-20, an agreement signed before marriage does not count as the spouse’s consent.
  5. If the surviving spouse is the sole trustee of a trust that will later pass to the first spouse’s children, conflicts can arise, for example over investments that favor current income over growth. Some people name an independent trustee or a co-trustee. Under Uniform Trust Code §803, a trustee of a trust with two or more beneficiaries must act impartially, giving due regard to their respective interests. An independent trustee does not remove every conflict, and professional trustees charge fees that vary widely.
  6. Life insurance is sometimes used to provide for children of an earlier marriage directly, by naming them, or a trust for them, as beneficiaries, while other assets go to the spouse. Whether those proceeds count toward the elective share depends on the state: UPC §2-205 includes proceeds of a policy the decedent owned, while Florida counts only its cash surrender value. Beneficiary designations override a will, so out-of-date ones are a common source of unintended results; many people check them after a marriage, divorce or birth.

Key facts

  • QTIP trusts are governed by IRC §2056(b)(7) in the United States, allowing income payments to a surviving spouse while directing principal to other beneficiaries.
  • Under UPC §2-202 (2008), the elective share is 50% of the marital-property portion of the augmented estate, which reaches 100% of that estate after 15 years of marriage; states vary.
  • Florida’s elective share is 30% of the elective estate (Florida Statutes §732.2065), which includes revocable trust property and payable-on-death accounts.
  • Under UPC §2-213, a waiver of the elective share is unenforceable if not signed voluntarily, or if unconscionable and made without fair disclosure.
  • Under the UPC, the augmented estate includes the probate estate, many non-probate transfers, and the surviving spouse’s own property.
  • Under UTC §803, a trustee with two or more beneficiaries must act impartially; an independent trustee follows the trust terms but does not remove every conflict.

Exercise nine, six, three, one

9CollectList up to 9 major assets you and your spouse own (most couples have fewer), such as a home, investment accounts, retirement accounts and life insurance, noting for each whose name it is in and who is named as beneficiary.
6ClusterSort the assets into 6 categories: joint with right of survivorship, individual name passing by will, held in a trust, retirement accounts, life insurance, and other non-probate transfers.
3DistillReduce the 6 categories to 3 groups: assets passing under your will or trust, assets passing by title or beneficiary designation, and assets you are unsure about; then note which might count toward an elective share in your state.
1CrystallizeWrite 1 sentence summarizing how your current asset distribution balances the financial security of your surviving spouse with the inheritance rights of your children from a previous marriage.

Fact check

Dates, figures and claims checked against the published sources listed below.

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