Planning it Right the Second Time Around
by
Judith Sterling and Michelle Tucker, Attorneys at Law
Increasingly, Americans do not remain with their first spouse for life.
According to a 2001 study by the National Center for Health Statistics of the U.S. Department of Health and Human Services, twenty percent of first marriages face “disruption” (defined as separation or divorce) within the first five years. One-half of all first marriages face disruption within the first twenty years of marriage.
After disruption of the marriage, most people remarry. Seventy-five percent of divorced women remarry within ten years. This trend toward multiple marriages has resulted in millions of “blended” families. While each family is unique, blended families bring even more challenges for estate planning. Each spouse may have children from prior marriages and the two spouses may have children together. Spouses may come to the marriage from different financial positions.
In the traditional couple’s estate plan, the couple wants the surviving spouse to have access to all of the assets at the first spouse’s death. They typically want the assets split equally among their children at the death of the survivor. This traditional couple’s plan often does not meet the needs of blended families. A growing number of blended families will use a combination of two trusts to gain great flexibility. The first trust, the Family Trust, contains the first spouse’s estate tax applicable exclusion amount. The assets in the Family Trust can be used for the benefit of any of the children when the predeceasing spouse wishes to benefit. The assets can also be used for the surviving spouse. The second trust is a Qualified Terminable Interest in Property (QTIP) trust.
A QTIP trust leaves assets in trust for the surviving spouse. All of the income goes to the surviving spouse during his or her lifetime. However, at the death of the surviving spouse, the assets are distributed as the predeceasing spouse directed. In other words, the assets could go to the children of the predeceasing spouse if desired. The surviving spouse does not have to have the ability to alter the disposition. By leaving assets in the QTIP trust, they qualify for a marital deduction at the death of the first spouse. This means there need not be any estate tax due at the death of the first spouse.
The assets of the other spouse can have a completely different set of beneficiaries than the assets of the predeceasing spouse. So, the husband could leave the assets in the Family Trust to the wife for her life and then to his own children. On the other hand, the wife may decide the husband has sufficient assets and leave the Family Trust directly to her own children, excluding the husband. Both the husband and wife might decide to leave assets over the estate tax exclusion amount in QTIP trusts for each other.
Each blended family is unique. Each couple has its own set of goals to accomplish. Proper estate planning can tailor a solution to help meet those goals. A qualified estate planning attorney can help you decide upon a plan that fits your unique situation.
Attorneys Judith Sterling and Michelle Tucker are both CPAs and licensed attorneys. They are the first two attorneys in Hawaii to be certified by the American Bar Association (ABA) accredited Estate Law Specialist Board, Inc., as Estate Planning Law Specialists, and are so certified by the Supreme Court of Hawaii. The Supreme Court of Hawaii grants Hawaii certification only to lawyers in good standing who have successfully completed a specialty program accredited by the ABA.
For a free copy of “The Trouble with Joint Tenancy” call 531-5391. Ext. 0 or just reserve your seat at a free Estate Planning Seminar by calling 531-5391 Ext. 330.
Legal Disclaimer
This information has been provided for informational purposes only. It does
not constitute legal advice. The receipt of this information does not establish
an attorney-client privilege. Proper legal advice can only be given upon consideration
of all the relevant facts and laws. Therefore you should not act upon any
of the information contained herein without seeking appropriate legal counsel.
Attorneys Judith Sterling and Michelle Tucker are both CPAs and licensed attorneys. They are the first two attorneys in Hawaii to be certified by the American Bar Association (ABA) accredited Estate Law Specialist Board, Inc., as Estate Planning Law Specialists, and are so certified by the Supreme Court of Hawaii. The Supreme Court of Hawaii grants Hawaii certification only to lawyers in good standing who have successfully completed a specialty program accredited by the ABA.
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