Blended Families | Clifford M. Cohen

  • Clifford M. Cohen,
  •   Estate Planning
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Now that the estate tax exemption has been stabilized at $5,000,000 and a husband and wife can actually give up to $10,000,000 at death (plus an indexed amount tied to inflation), to their loved ones, tax free, many people believe that estate planning is no longer necessary. This of course is a myth. Although tax savings may be one reason for estate planning, there are many other equally, if not more important, reasons why every family should have some type of estate plan.
One of the most compelling occurs where there are children from a previous marriage.  In this increasingly common situation (the so called “Blended Family”), the failure to provide a properly drafted estate plan can have disastrous consequences.

Let’s assume, for example, that you die with the traditional cookie-cutter estate plan leaving all of your assets to your new spouse.  How do you ensure that at death he or she will provide for the needs of the children from your first marriage?  Even if your spouse was close to them during your lifetime, can you really expect once you are gone that they will treat the children from your previous marriage the same as their own children?  And, if you have no estate plan at all, the situation is even worse. In that instance, intestate inheritance statutes will determine how assets are divided and may treat all of the children equally. But what if your children from the previous marriage are adults and financially successful and your children with your new spouse are minors?  In that event, you may wish to leave additional funds to your younger children to meet their unique needs such as their college education.

One common way to address these challenges and others that occur when planning for the Blended Family, is to leave assets to your new spouse in trust.  There are several benefits to using a trust rather than a simple will in planning your estate. First, using a trust allows you to control what happens to your estate after your death and can ensure that the children of your first marriage are treated fairly. Second, you can specifically tailor the trust to account for the different financial needs of your children whether because of their age, or otherwise.  Finally, you can protect assets from depletion either because of bad financial decisions or simple overspending by your spouse. One type of trust often used is the Qualified Terminable Interest or “QTIP” Trust. This trust is designed to provide income to the surviving spouse with principal distributions, if any, limited to specified occurrences. It also qualifies for the marital deduction so as not to unnecessarily use up the decedent’s estate tax exemption amount.  Please visit our website for more information about Estate Planning with Blended Families and QTIP Trusts.