Blended families, those in which one or both spouses may have children from a previous relationship, are a reality in today’s society. It is particularly important to address the complexities that are faced when families and assets are combined in terms of estate planning.
There are several techniques that an estate planning attorney can recommend to address the specific needs of blended families. These estate planning tools include:
- A two-part estate plan: An estate plan that accounts not only for benefit of the surviving spouse, but also gives a portion to the children of the deceased, either outright, or in a trust, that takes advantage of federal estate tax exemptions.
- QTIP, or Qualified Terminable Interest Property trust: With this type of trust, assets are held in trust for the use of a spouse, who is entitled to receive income from the trust and make use of any trust assets, including the primary residence. The spouse is also allowed to spend trust principal to the extent that is allowed by the trust. The grantor (the person who established the trust) names beneficiaries who will inherit the trust assets when the surviving spouse dies, for instance, his or her children, who may not be the children of the surviving spouse.
- Lifetime gifts: Gifts are allowable and tax free to a certain extent, and you have the added benefit of seeing the beneficiary enjoy the gift. Each year you are able to give away money or property in the form of a gift that is nontaxable, as long as it is below the gift tax exclusion amount. This amount is $13,000 if the gift giver is an individual, $26,000 for a couple in 2011.
These are just a few of the basic strategies for estate planning for blended families. As you can see, it can become a challenge to plan for potential conflicts, human nature and future needs when blended families are involved, particularly when there are children from previous marriages. Make sure you consult with an estate planning lawyer if you are facing this challenge.