Do You Need a Sweetheart Trust?

Filed under: Estate Planning

Estate planning is an essential life step for everyone. However, for married couples this process takes on extra importance. How do you plan to protect and provide for your spouse after your death?

As you discuss your estate planning needs with your attorney, the concept of a revocable living trust will be introduced. Certain trust structures are also commonly called a “Sweetheart Trust”, because they are established with the purpose of helping your surviving spouse to maintain a high level of discretion over assets included in the trust.

While both spouses are alive and competent, either one can revoke his or her share of the trust. The trust can be modified with the consent of both parties. After the death of one spouse, all assets remain in the revocable trust for the rest of the surviving spouse’s life. During that lifetime, the surviving spouse can change the terms of the trust, add or remove beneficiaries, or terminate the trust entirely. Because the trust is treated as an unconditional gift from the deceased spouse, it is often called a Sweetheart Trust.

A Sweetheart Trust is an attractive option for many couples, because it offers a simple and straightforward estate planning solution. The trust helps the surviving spouse to avoid the lengthy and arduous probate process. It is also a simpler method to transfer assets to the surviving spouse, as no documentation is required to divide the trust, and separate tax returns are not required. A Sweetheart Trust is, in most situations, easier and cheaper to administer than other options.

Due to recent changes to the Federal Estate Tax laws, a Sweetheart Trust is now even more appealing. The unified estate tax credit amount, or the amount of assets that can pass free of Federal estate taxes has been raised to $5.45 million. Second, portability allows the surviving spouse to use the unused unified estate tax credit of their deceased spouse. In other words, a married couple can essentially pass almost $11 million to their heirs, free of Federal estate taxes.

But of course, a Sweetheart Trust is not right for every situation. To determine whether this type of trust is right for you, consult with our estate planning attorney. We can assess your goals and help you decide the best way to pass assets to your spouse… and then, one day, to your children or other heirs.

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