If you are married, then there are a few different types of trusts you can use to help protect your estate and leave your estate to your surviving spouse. With the unified credit amount being bumped up to $5 million for individuals and $10 million for couples, it has become a bit easier for people with larger estates to leave something for their heirs without tax complications. But that does not mean that couples should not investigate other options to keeping their estates in the family.
A sweetheart trust is the nickname given to a revocable living trust set up between a married couple that is designed to protect the couple's assets. It is a trust that is set up when both spouses are alive and considered able to make decisions for themselves. The trust is set up to leave the surviving spouse whatever is considered part of the estate. It is a simple vehicle for protecting assets and making sure that those assets are moved to the surviving loved one.
Once a sweetheart trust is established, the spouses can make any changes they want. The one provision of changing a sweetheart trust is that both spouses must agree to the changes for those changes to take place.
Either spouse has the ability to revoke their portion of the trust, and the terms and conditions of the trust can be changed at any time. Not only is a sweetheart trust a very simple financial vehicle that can be used to protect and transition assets, but it is also extremely versatile and flexible to accommodate the needs of the couple.
The truth is that a sweetheart trust is a strong vehicle for protecting the assets of a married couple. The ability to alter the trust while the couple is still alive means that any changes that occur in the couple's life can easily be rolled into the trust. The couple can also agree to alter the structure of the trust to benefit other family members as well.
When one spouse passes away, the surviving spouse has complete control over the sweetheart trust. In many cases, this does not present a problem. But there could be instances where the surviving spouse having complete control over the couple's estate could be an issue.
As strong of a vehicle as a sweetheart trust is for a couple to use to protect their assets, it can also have its challenges. For example, if there are step-children in the marriage and one of the spouses passes away, the surviving spouse has the complete authority to take the step-children out as beneficiaries and leave their own natural children in.
If the surviving spouse remarries, then that surviving spouse could put their new spouse in as a part of the trust and completely disinherit the deceased spouse's family. While this is not a normal occurrence, the structure of the sweetheart trust does allow for this scenario to take place.
If you and your spouse are considering ways to protect your assets and provide for each other when one has passed, then talk to your estate attorney about a sweetheart trust. You may find that it is the solution that you and your spouse have been looking for.