Blended Family Trust Example

Since John is older and has more assets than his new wife, they created a Revocable Joint Trust that will become two trusts upon the death of the first spouse. While they are both alive, they may make any changes they want to the trust, but once one of them becomes deceased or incapacitated, a disclaimed amount of assets will be transferred to the Irrevocable Bypass Trust. Since this trust is irrevocable, the terms of the distributions, trustee, and beneficiaries cannot be changed. The remaining assets will be placed into the Marital Trust, which can be changed or amended by the surviving spouse. Upon the death of the second spouse, the assets of both trusts will be split according to their terms.

While Both Spouses Are Living: John and Jane Smith Joint Trust

• Beneficiary: John and Jane Smith
• Revocable trust that may be amended
• May add or remove property

Upon Death of 1st Spouse

The trust splits into two:

Marital / "A" Trust

• Trustee: surviving spouse (Jane)
• Revocable trust that may be amended by the surviving spouse
• May add or remove property
• Beneficiaries may be changed by the surviving spouse
• Only beneficiary is the surviving spouse during their lifetime

Bypass / "B" Trust (funded with the estate tax limit/disclaimed amount)

• Trustee: surviving spouse
• Trust is irrevocable
• Assets cannot be added or removed
• Beneficiaries cannot be changed
• Holds the deceased spouse's separate property
• Pays expenses of deceased spouse
• Available to surviving spouse only if needed

Upon Death of 2nd Spouse

Assets from both trusts are distributed to the children according to their terms:

• Child 1 (child of Jane) — receives portion of Marital Trust
• Child 2 (child of John and Jane) — receives portion of Marital Trust and Bypass Trust

Child 3 (child of John) — receives portion of Marital Trust and Bypass Trust