How Can a Spousal Trust Protect Your Children’s Inheritance After a Second Marriage?

When you get remarried later in your life, you and your spouse will need to combine two sets of savings, two homes, and two families. This may raise questions about how you can make sure you will be able to take care of your new spouse without accidentally cutting your own kids out of their inheritance. The answers will often depend on how you structure your assets in addition to making decisions about who will inherit money or property.

A spousal trust can protect your children’s inheritance by giving your spouse the income or support they will need for the rest of their life while setting aside certain assets for your children. When your spouse passes away, whatever is left will go to your children or other beneficiaries you have named. An attorney who has experience in estate planning and asset protection can help you understand your options and make sure you take the right steps to ensure that your wishes will be followed correctly.

What Is the Risk of Leaving Everything to Your Spouse?

Many couples write simple wills that leave everything to each other. That can work when both spouses share the same children. However, in a second marriage, this can create serious problems. If your spouse inherits your assets outright, that property will belong to them. They can spend it, change their own will, or leave it to anyone they choose, even if they once promised to “take care of your kids.”

Here are some common ways children from a first marriage end up with less than their parent intended:

• The surviving spouse leaves everything to their own children or relatives in their will
• The surviving spouse remarries, and their new spouse inherits the assets
• Savings are spent down on long-term care or nursing home costs
• Creditors or lawsuits against the surviving spouse result in the loss of assets

How Illinois Law Addresses Surviving Spouses

Even if you do not leave everything to your spouse, Illinois law gives them certain rights. Under the Illinois Probate Act, a surviving spouse can renounce a will. When they do so, they can reject the amount allocated to them in an existing will and receive the share of the estate allowed under the law. If you have children or other descendants, that share is one-third of your probate estate. If you die without a will, the laws addressing intestate succession in Illinois will generally split your estate in half between your spouse and your children.

How Does a Spousal Trust Work?

When you create a trust, you will give a person known as a trustee the authority to manage your property. They are required to manage assets for the benefit of the beneficiaries you have named and distribute assets to beneficiaries based on specific instructions you provide. With a spousal trust, your spouse will usually be the main beneficiary during their lifetime, and your children will be the “remainder beneficiaries.” That means they will receive what is left after your spouse passes away.

Your trust document will spell out what your spouse can receive. For example, you might allow them to:

• Receive all of the income the trust earns, such as interest and dividends
• Live in your home for the rest of their life
• Use money for health care, housing, and basic living expenses

Assets held in a properly funded trust generally do not pass through probate. With a trust, you can save time and keep your family’s finances private while making sure your assets are distributed correctly.

What Types of Spousal Trusts Are Available?

The right type of trust to use will depend on your assets, your spouse’s needs, your children’s ages, and your tax situation. Options include:

QTIP Trust

A qualified terminable interest property (QTIP) trust is one of the most common choices for blended families. Your spouse will be able to receive income from this type of trust at least once a year for the rest of their life. When your spouse dies, the remaining assets will pass to the beneficiaries you chose, usually your children.

Credit Shelter or Bypass Trust

A credit shelter trust, sometimes called a bypass trust, may be used for larger estates. It will hold assets up to the amount that can pass to beneficiaries without estate taxes being assessed. Your spouse can receive income from the trust, and the assets will “bypass” their estate when they die, preserving them for your children.

Lifetime Support Trust

Some people prefer simpler types of trusts in which the trustee will provide money to a spouse for specific needs, such as health care and housing. This can give the trustee more control over assets and make sure they are preserved for children, grandchildren, or other family members.

How Do You Balance Your Spouse’s Needs With Your Children’s?

As you determine your estate planning options, you will want to provide security for your spouse while making sure your children will be able to inherit your assets according to your wishes. As you consider your options, you will want to:

Choose the Right Trustee

It is important to choose a person you trust to manage your assets and distribute them correctly. If you name your spouse as the trustee, this could lead to conflict with your children. If you name a child or other family member as a trustee, this could put your spouse in a difficult position if they will need support after your death. You may be able to avoid conflict by choosing a neutral party such as a professional trustee, or co-trustees from both sides of the family could work together to manage a trust.

Consider Other Tools Alongside Trusts

A prenuptial or postnuptial agreement may be used to clarify what each spouse will receive after the death of the other spouse. You may also use life insurance to provide your spouse right away so that your children can inherit other assets more quickly. As you address estate planning issues, it is also important to review retirement account beneficiary designations to make sure these assets will be distributed to the correct people after your death.

Contact Our Naperville Spousal Trusts Lawyer

After a second marriage, you should not have to choose between your spouse and your children. A spousal trust and other types of trusts can help you provide for everyone who is important to you. At Gierach Law Firm, our Naperville, IL trusts attorney can walk you through your options and help you create a plan that reflects your wishes. Call 630-756-1160 today to schedule a consultation.