Category: Blended Families

Blended Families

Consider a QTIP trust for your Blended Family

Many people have so-called “blended” families, where one or both spouses have children from a previous marriage. Estate planning can be hard for a spouse in a blended family who wants to provide for a surviving spouse and for children from an ex-spouse. Consider a QTIP trust for your blended family.

Fed Week’s recent article entitled “‘Blended’ Families Raise Special Estate Planning Considerations” suggests that one option may be a qualified terminable interest property or “QTIP” trust.

This kind of irrevocable trust is frequently used by those with children from another marriage.

A QTIP trust allows the grantor of the blended family to provide for a surviving spouse and maintain control of how the trust’s assets are distributed, once the surviving spouse dies.

Income (and sometimes the principal) generated from the trust is given to the surviving spouse to ensure that the spouse is cared for during the rest of his or her life. Therefore, with a QTIP:

  • At the death of the first spouse, the assets pass to a trust for the survivor. No one else can receive distributions from the trust; then
  • At the death of the second spouse, any assets left in the QTIP trust are passed to beneficiaries named by the first spouse to die. This is usually the children of the first spouse to die.

With a QTIP trust, estate tax is not imposed when the first spouse’s dies. Rather, estate tax is determined after the second spouse has died. Moreover, the property within the QTIP providing funds to a surviving spouse qualifies for marital deductions. As such, the value of the trust isn’t taxable after the first spouse’s death.

While this arrangement may appear to address the needs of both sides, in many remarriages the surviving spouse is much younger than the one who died.

In many cases, the surviving spouse may be close to the age of the children of the spouse who died. As a consequence, those children may have to wait a number of years for their inheritance.

To avoid this, a better approach would be to provide for biological children as well as for a surviving spouse at the first death. It might be time to consider a QTIP trust for your blended family. Assets can be divided at that time. If an asset division is impractical, the proceeds of a life insurance policy may help to provide some inheritance for all parties.

If you would like to learn more about estate planning for blended families, please visit our previous posts. 

Reference: Fed Week (May 7, 2021) “‘Blended’ Families Raise Special Estate Planning Considerations”

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The Monthly Two Minutes - Blended Families

The Monthly Two Minutes – Blended Families

The Monthly Two Minutes – Blended Families

We’ve started a new monthly video series that we are calling the The Monthly Two Minutes and are excited to share the latest edition – Blended Families. The second episode deals with the complexity of blended families. Second marriages and step-children can make investment and estate planning more difficult. We discuss what financial advisors need to know.

As a reminder, we now have a our own Podcast, The Estate of the Union! It’s “Estate Planning Made Simple” and we tackle all kinds of topics relating to the board spectrum of estate planning. We’ve got four already posted and more to come. We hope you will enjoy them enough to share it with others. It’s available on Apple, Spotify and other podcast outlets.

Brad Wiewel is a Board Certified Texas estate planning attorney with a state-wide practice. Mr. Wiewel is an AV Rated attorney, which is the highest distinction for practicing attorneys in the legal world. Brad is licensed by both the Supreme Court of the United States and the Supreme Court of Texas. He received a B.A. from the University of Illinois, and graduated from St. Mary’s School of Law in San Antonio with distinction (Top 10%).

wise to revise your planning with a second marriage

Revise your Planning with a Second Marriage

It is wise to revise your planning with a second marriage. The assets you and your second spouse bring into the marriage need to be carefully considered when revising your estate plan, says a recent article “Value of an Estate Plan Review With a Second Marriage” from Mondaq. If there are children from one or both partner’s prior marriages, those too need to be considered. If you plan on having children together, the estate plan needs to include this as well.

The best time to prepare this new estate plan would be before the wedding. This way, you can both go forward with the wedding and celebration with clear minds and hearts.

Start with a complete inventory of all assets and debts. List financial accounts, including investments, savings and checking accounts. Real estate and any personal assets, pensions and tax deferred retirement accounts should be included.

Review your wills, trusts, health care plans and directives, powers of attorney and any other estate planning documents at this time.

There may be assets that need to be retitled, and beneficiaries on all assets that permit designated beneficiaries should be updated at this time. Check to be sure a prior spouse is not the beneficiary of any life insurance or pensions. Any debts or liabilities that one partner brings to the marriage should be reviewed at this time. Comingling accounts and marriage will make both spouses responsible for each other’s debts, which should be discussed candidly.

Based on the inventory, one or the other partner may wish to have a prenuptial agreement to protect their individual financial interests during a second marriage. A prenuptial agreement may also be used to waive respective rights to each other’s property. These agreements are also used to serve as a means of retaining control of a business and defining premarital assets and debt.

When children are involved, decisions need to be made as to how assets are to be divided. Does one spouse want to leave their assets to their own children or to all of the children?

One way of addressing children in a second marriage is to create a separate marital trust to ensure that the new spouse receives the share of the assets you want them to have, while preserving your children’s inheritance. In the case of IRAs, it may be prudent to split them into separate IRAs among your spouse and children to protect the children’s inheritance.

When naming new beneficiaries, be aware that your new spouse may have mandatory rights to certain assets, such as qualified retirement plans. The only person who can inherit a Health Savings Account (HSA) without it becoming taxable, is your spouse. Remember to change this from your former spouse to the new spouse. Naming your children as the beneficiary would cause the account to be taxable on your death.

There could be significant financial consequences if you fail to revise your planning with a second marriage. An estate planning attorney who has worked with second and subsequent marriages can help facilitate a discussion about structuring an estate plan. Working with a professional who knows how these situations are resolved can be a great help in getting the process started and keeping it moving forward.

If you would like to learn more about estate planning and blended families, please visit our previous posts. 

Reference: Mondaq (March 2, 2021) “Value of an Estate Plan Review With a Second Marriage”

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when mom refuses to get an Estate Plan

Estate Planning Presents Emotional Challenges

More than two-thirds of all advisors surveyed by Key Private Bank said the hardest part of estate planning is navigating family dynamics, according to a 2019 survey. The sensitivity of simply talking about estate planning presents emotional challenges to putting a plan in place, especially when the family includes multiple marriages and blended families.

Advice is offered in a recent news article from CNBC, “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth.”

Much of the problem, experts say, stems from poor communication. A dialogue needs to be open between generations that is a two-way conversation. In most instances, the older generation needs to invite the younger generation to get the ball rolling.

A lack of clarity and transparency can lead to problems. One example is a father leaving the family farm to his children, with a plan that also included money to help run the farm and legal documents to help the transition go smoothly. However, the children didn’t want the farm. They wanted to sell. Disagreements broke out between siblings, and the family was bogged down in a big fight.

Clearly Dad needed to talk with the children, while his estate plan was being created. The children needed to be upfront and honest about their plans for the future, and the issue could have been solved before the father’s death. The lesson: talk about your wishes and your children’s wishes while you are living.

After someone dies, they may leave behind an entire estate, with a lifetime of personal items that they want to gift to family members. However, if these items are not listed in the will, the heirs have to decide amongst themselves who gets what. This is asking for trouble, whether the items have sentimental or financial value. In fact, sentimental items often generate the most controversy.

When conflicts arise, the presence of a third party who doesn’t have emotional attachments and is not embroiled in the family dynamics can be helpful.

If the issue is not addressed before death, there are a few ways to move forward. An estate planning attorney who has seen many families go through the emotional challenges of estate planning can offer suggestions while the will is being prepared. There are facilitators or mediators who can help, if things get really rocky.

Heirs may wish to create a list of items that they would like to be reviewed by the executor. This option works best, if the executor is not a sibling, otherwise charges of favoritism and “Mom always liked you best” can spiral into family spats.

Some families group items into buckets of equal value, others set up a lottery to determine who picks first, second, etc., and some families literally roll the dice to make decisions.

If you would like to learn more about inheritance and distributing personal property, please visit our previous posts. 

Reference: CNBC (Nov. 12, 2020) “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth”

 

Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact The Wiewel Law Firm to schedule a complimentary consultation.
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