Estate Planning Challenges for Blended Families

Disinheriting the Ex-Spouse

     Without proper legal planning, your ex-spouse (as surviving parent/guardian) would likely be appointed by the probate court to manage the inheritance you leave to your children. To make matters worse, what if your children later predecease your ex-spouse, and are single and childless at that time? Who would inherit your assets then? That is right … your ex-spouse, as the next-of-kin of your children.

You Could Disinherit Your Own Children

     Chances are you made a few solemn promises to your new spouse on your wedding day. Among them were promises to be there through thick and thin, personally and financially. Accordingly, most spouses in blended families tend to blend their wealth, too.
     Warning: If you predecease your new spouse, then you may forever disinherit your own children from your share of such blended wealth! Thereafter, upon the death of your new spouse, your assets may be inherited by your stepchildren, or even by your new spouse’s next spouse and their children.

Inheritance Protection

     Whether children are reared in a traditional nuclear family or in a blended family, great care should be given to protect any inheritance both for them and from them. Wealth representing a lifetime of your hard work and thrift can be squandered in very short order, or can quickly vanish through divorces, lawsuits and bankruptcies.

Discretionary Trusts

     Want to make your Life & Estate Plan heir tight? If so, you should consider a Discretionary Trust. As the name implies, a discretionary trust makes distributions only in the sole and absolute discretion of the Trustee. The key to a successful Discretionary Trust is selecting and entrusting an appropriate Trustee with broad discretionary authority to protect your wealth for and from your heirs. The non-fiduciary position of Trust Protector can be created to appoint and even remove such a Trustee to ensure fulfillment of your objectives. As such, the Trust Protector serves as an ongoing Guardian Angel.

Final Thoughts

     This has been a very cursory examination of a very complex subject. Be sure to engage appropriate legal counsel before you pursue any financial or legal strategy to overcome blended family challenges.
     First answer: Henry Fonda and Lucille Ball.
     Second answer: The Brady Bunch, of course!

Final Thoughts

     In the process of nurturing and caring for her loved ones, every woman should take time to make sure she has addressed her fundamental Estate Planning and Financial needs. This article has been a brief, general introduction to rather complex subjects. Competent professional advice should be sought.

Estate Equalization

Minimizing Estate Taxes

     To provide financial security for your new spouse and to minimize your estate tax exposure, consider arranging for an Estate Tax Exemption Trust (ETE Trust) and a Qualified Terminable Interest Property Trust (QTIP Trust) to be created under either your Last Will and Testament or your Revocable Living Trust. Through this arrangement you may maximize your estate tax savings as you provide income and even principal to your new spouse for life. Thereafter, upon the death of your new spouse, the assets of both Trusts may pass to your own children.

Providing an Inheritance For Your Children: The Irrevocable Life Insurance Trust

     Having taken care of your new spouse, we now shift our focus to providing a concurrent inheritance for your own children. An Irrevocable Life Insurance Trust (ILIT) is one strategy to consider.
     First, you create an ILIT with your own children as the beneficiaries. Select the amount of life insurance that will represent their inheritance upon your death, according to your estate equalization goals. Note: While you may not serve as a Trustee, you may select the current and successor Trustees.
     Second, make gifts to the Trustee on behalf of your beneficiaries in an amount roughly equal to the insurance premiums. The Trustee then provides written notice of the completed gift to each ILIT beneficiary, giving each a designated period of time (not less than 30 days is typical) to request distribution of their respective share of the gift. After the designated period has lapsed, the Trustee applies for the appropriate amount of Life Insurance and pays the initial premium. [Note: This annual gifting ritual continues until your death.]
     Third, if all of the ILIT steps have been followed, the death benefit will be estate tax free when paid to the ILIT for your own children. Properly structured, this inheritance will be protected both for and from your own children, as well. Later, upon the death of your spouse, the assets of the ILIT may be merged with the assets of the ETE Trust and the QTIP Trust for more economical and efficient administration for your own children (and even grandchildren).