Protecting Blended Families

Blended families typically are created when two divorced adults with children get married. The resulting unit may also be called a stepfamily. Additionally, the two new married parents may have a child together.

Estate planning is different for the parents in a blended family. Most parents want their blood children to inherit their assets, especially family heirlooms. Joint tenant assets (owned with a spouse) will be inherited by the surviving spouse when you die. Are you sure that when your spouse dies, he will give your children part of the assets he inherited from you? If he dies without a will, or doesn’t change his will after you die, your assets go to his children. If he remarries after you die, your assets could go to his next wife and her kids. Since it is common for a married couple to own a house and bank accounts as joint tenants or tenants by the entirety, you must ensure that the title is changed to tenants in common or separate the accounts. That way, your assets go to your children and your spouse’s assets go to his/her children.

If you are married to a spouse that is much younger than you are and there are older children from the earlier marriage, you might consider giving some assets to the children of the earlier marriage while you are alive. Before you do so, you want to consult an accountant and an estate planning lawyer because you might run into issues with gift taxes or other legal problems that professionals can help you solve. You also don’t want to give away so much that your current spouse feels impoverished.

You also need to make sure that all legal documents that refer to your spouse (such as retirement plans, life insurance policies, or wills) use the name of your current spouse, not the name of the divorced or deceased spouse. If you are not careful, assets may go to the wrong person.

If you leave things to luck, you are almost guaranteed that chaos will follow after the first spouse dies. It is smart to work through these issues now and get all your legal affairs in order.

Basic Estate Planning

What is estate planning? It is arranging for how your assets will be distributed to your heirs when you die. It ensures that your loved one’s futures are protected by your foresight.

Estate planning means determining how much your assets are worth, to whom you want them to be distributed after your death, and deciding who you want to carry out your wishes.

A will details to whom your assets will go after your death. It names the guardian of your children, the person who will act as trustee for preserving and distributing the money that your children will inherit, and the person who will transfer the assets from your name to the persons who inherit.

Estate planning also allows you to minimize the amount of taxes you pay upon your death. The United States tax code permits spouses to inherit from each other without paying any estates taxes, no matter how large the estate. If, however, your children inherit from you, you can leave $2,000,000 without paying estate taxes. Unfortunately, in New Jersey, the legislature was not as generous. In order to raise revenues, the New Jersey government decided that you can exempt only $675,000 from your estate before estate taxes may be required to be paid. You can give any amount to your spouse or a charity without paying any estate taxes. New Jersey also has an inheritance tax which is assessed on persons who receive an inheritance from you who are not your spouse, domestic partner, parent, grandparent, children, stepchildren, or grandchildren.

Estate planning continues even after you sign your will. As your circumstances change, so might your decisions of who should be your children’s guardian, whether you need tax planning because your assets have increased, or in the case of divorce. Changes to the estate tax laws should also have you picking up the phone to call your lawyer to find out if those changes affect you.

Living trusts

Living trusts have become very popular in recent years.  For some people they are a great solution.  If you live a certain states, they save you lots of money. 

 What is a living trust?  It is an entity separate from you and your spouse that owns the property that you and your spouse transfer into it.  The trustee that you appoint (which can be yourself or your spouse) has legal title to the assets in the trust and when you create the trust, you also name the beneficiaries for after you die (which can be your spouse, or your children).  The document that creates the trust defines the powers of the trustee as well as how and when the trust assets will be distributed.  Trust assets can be distributed immediately after your death or several years later when your children are much older.

One of the main reasons living trusts are urged on the public is that it supposedly saves money on probate.  In some states, probate (the court process where the terms of your will are carried out) takes a few years and costs several thousand dollars.  In the meantime, your spouse and children are unable to get to your assets, possibly leaving them without funds.  This is not such a concern in New Jersey, where probate is much faster and less costly.

Another advantage of a living trust that you will hear is that while probate is public, a living trust keeps all of your family arrangements private.  This is true for all persons.  Wills are public documents and anyone can read any will that has been filed with the court.  Today’s newspaper had an article about Heath Ledger’s will.  Any reporter or average Joe can read your will once it has been submitted for probate.  Do you careif someone reads your will?  Will anyone else care about your will?  Probably only if you are very rich and very well-known.

Don’t believe anyone who tells you that if you have a living trust you don’t need a will.  Many more people need a will than need a living trust.  If you forget or never get around to putting all of your assets in your trust, title to that asset outside of the trust will need to be probated.  Without a will, it will go to those people that the state dictates.

There are some poeple out there who can use a living trust.  They are much fewer than you would think by the number of ads for them.  If you do think you might want to have a living trust, consult an estate planning lawyer first.  Get all the facts specific to your own circumstances.  Then, decide whether it’s the right step for you. 

Wills

Why are wills so important that everyone should have one? After all, if you die without one, someone will still inherit your assets. It might even be the persons that you wanted to inherit your assets. At the very least, a person who does not have a will leaves a more time-consuming and expensive probate procedure behind. At the worst, you create a war within your family from which they may never recover.

Your will ( last will and testament is an old-fashioned term that is no longer used) sets forth who will inherit your bank accounts, your real estate, your jewelry and anything else that you own. It will state the proportions that each person will inherit. Sometimes one person will inherit everything of one type of asset, sometimes you will split things among your spouse and your children. You can also leave property to your parents, siblings and friends, if you wish. A will also names the persons who will carry out your wishes (the “personal representative’), the person who will handle the money you leave to your children, and the guardian of your children if your spouse does not survive after you die.

Not everything passes through the will. If you have a life insurance policy, the beneficiary designation determines who will get the insurance money. A “payable on demand” bank account names the person who gets the funds in that bank account and only that bank account (another “payable on account” bank account can have a different beneficiary).

Each parent should have a separate will. It can name the other person to inherit initially and act as personal representative, but can use the same persons as guardians of the children.

What happens if you don’t have a will? The laws of intestacy create the plan for your family, perhaps one that you disagree with. It may leave jewelry to your spouse that you wanted to go to your children. It may leave the children from your previous marriage with assets that need to be administered by the court. If both you and your spouse die in the same car accident, who will take care of your children? Someone will have to petition the court for guardianship and it may not be the person you would have picked.

There are many books and articles on the internet about how to draft a will. But you should have a lawyer do the drafting. If you write your own will and make one mistake, the will might be worthless and you have died without a will.