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What Is a Sweetheart Trust?

A revocable living trust is an estate planning tool that lets you transfer assets to a trustee. You can serve as your own trustee, allowing you to keep control over the assets during your lifetime. Upon your death, a successor trustee (that you previously named) assumes control of the trust and distributes its assets according to your instructions.

Many married couples in Michigan find it useful to create a joint revocable living trust. These are informally called “sweetheart trusts,” because they are designed to maximize the surviving spouse’s control over the trust’s assets after the other spouse passes away. But sweetheart trusts may not be appropriate for every estate planning situation.

How Sweetheart Trusts Work

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Sweetheart trusts are a type of revocable trust. The spouses typically serve as co-trustees. Either spouse can contribute assets to the trust during their lifetimes. Since the trust is revocable, each spouse can also remove some or all of their assets from the trust.

When the first spouse dies, the surviving spouse continues as sole trustee. The trust remains revocable, so the survivor is free to change the terms of the trust or even revoke it. The deceased spouse has, in effect, made an unconditional legal gift of his or her share of the trust assets to the survivor.

Advantages and Disadvantages of a Sweetheart Trust

Once it is established, a sweetheart trust is relatively easy to administer. Assets placed in a trust do not pass through probate. So the surviving spouse can continue to use and enjoy the trust assets without disruption.

On the other hand, the first spouse to die loses control over the ultimate disposition of the trust’s assets. For example, let’s say a husband and wife each have adult children from prior marriages. The wife dies first. She wanted to leave part of the trust to her children. But after her death, the husband amends the trust to leave everything to his children. The wife’s children have no recourse, because under a sweetheart trust, the husband is free to alter the trust as he wishes.

Need Help Making a Michigan Trust?

There are other legal and tax considerations you should consider before making a sweetheart trust. A qualified Portage family trust attorney can help explain your options and figure out the best approach for you and your family. Contact the Law Offices of David L. Carrier, P.C., to schedule an appointment with one of our estate planning lawyers today.