Our friends at DP Legal Solutions discuss how second marriages bring a unique set of joys, but they also bring complex questions about legacy. A common request we hear is: “I want to make sure my new spouse is taken care of, but I also want to ensure that my children from my first marriage receive their inheritance eventually”. A wills lawyer can help structure an estate plan that reflects both priorities. Contact an experienced lawyer today to see if a conduit trust is the right mechanism to balance these competing priorities.

The Problem with Simple Rollovers

In a first marriage, the typical move is for the surviving spouse to roll the deceased spouse’s IRA into their own. While this maximizes tax deferral, it can be risky in a blended family. Once that money is in the surviving spouse’s name, they have the power to select their own beneficiaries, which could effectively disinherit the children from your first marriage.

How a Conduit Trust Works

A “conduit trust” offers a middle ground. This is a trust where the governing document requires that all distributions the trust receives from a retirement account must be paid out immediately to the primary beneficiary (usually the spouse).

Lifetime Support: Your spouse receives the required minimum distributions (RMDs) for as long as they live.
The Remainder Interest: Because the spouse is considered the “sole” beneficiary of the trust during their life, the account can often be distributed over the spouse’s life expectancy rather than being forced into a 10-year payout.
Protecting the Kids: When your spouse passes away, the remaining assets in the IRA can then be directed to your children from your first marriage.

Tax Advantages and the “10-Year Rule”

Under the SECURE Act, most trusts are forced to liquidate an inherited IRA within 10 years. This can lead to a massive, immediate tax bill. However, because a conduit trust treats the spouse as the sole beneficiary, it can often preserve the “stretch” over the spouse’s lifetime, providing much more favorable tax treatment.

Navigating these waters requires precision in drafting. If the trust isn’t set up correctly, it could be classified as an “accumulation trust,” which might force that 10-year liquidation anyway. For a personalized consultation to protect every member of your blended family, contact an experienced lawyer today.