A Farewell to the Current Gift and Estate Tax Exemption?
March 29, 2021
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According to recent statistics, four out of every ten families are blended families.
As you might expect, estate planning for blended families is often complicated. Proper planning requires not only careful financial and tax planning, but also often presents emotional issues around those decisions. Working with the right professional can help preserve family harmony and goals. If your family is a blended family, here are some considerations.
It is key to have a Will. Failure to do so means that North Carolina law will determine who inherits at your death. This can be problematic. For example, North Carolina law does not consider a stepchild who has not been legally adopted by you to be your child for purposes of intestate succession.
A simple "I love you Will" (where each spouse leaves everything outright to the surviving spouse) may work well for the first marriage, where both spouses have identical goals, but should be used only after careful consideration in a blended family situation. Take, for example, a husband who has a child from a previous marriage, and a wife who has three children. Husband dies, leaving everything outright to his wife. The wife lives for 15 more years, during which time she loses touch with the husband's child. The wife later signs a new Will leaving all of her assets to her children. The husband's child is disinherited. This scenario is not uncommon.
To ensure that the children of each spouse ultimately are treated fairly, trusts often are used. You can leave some or all of your assets in a trust that can support your spouse during his or her life. Then at your spouse's death, the trust controls who receives the remaining assets. In other words, you can ensure that your children will benefit at your spouse's death. If your spouse remarries, this strategy protects the assets from passing to a new spouse and their children. If a trust is used, advice regarding the choice of trustee is key.
There are other considerations as well. For example, you should consider the relative ages of the spouses. If you leave all of your assets in trust for a spouse who is much younger than you, your children would not receive any benefit until the spouse's death, which may not occur for many years. You might consider directing a portion of your assets to your children at your death. On the other hand, if you plan to leave your estate entirely to your children (and not benefit your spouse at all), an agreement clearly waiving spousal rights is recommended.
Careful consideration of your goals and communication with your spouse is key. People often have good intentions. Consulting with an experienced and skilled estate planning attorney can help you ensure your intentions to provide for your blended family are met and avoid inadvertent conflict.
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This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.
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