Estate planning is complicated enough in second marriages, but toss in a wrinkle or two, and you could be setting up loved ones for heartache.
There is an unfortunate myth that some people still believe about estate planning. Some people think that with the federal estate tax exemption at $5 million for a single person and $10 million for a married couple, they are “out of the woods” in terms of federal estate taxes and so do not need an estate plan.
That is a myth. Even if you don’t have estate taxes to worry about (now), you could have plenty of estate issues to deal with – especially if you are part of a Blended Family. The Chicago Tribune recently highlighted just a few of the “wrinkles” that could complicate estate planning for those in second marriages.
Consider a few of the potential complications:
- Non-Citizen Spouse – Let’s say you have children from a previous marriage, and you marry someone who isn’t a U.S. citizen. Beyond the “traditional” hurdles regarding estate taxes and non-citizens, you may have to deal with another complication. What if your non-citizen spouse leaves the country? What will happen to the estate assets you had intended to leave to your children? Consider a qualified domestic trust with an independent trustee overseeing the assets.
- Much Younger Spouse – Another type of trust often used in second-marriage situations is a qualified terminable interest trust (also known as a QTIP), which allows a spouse to receive income and distributions from a trust until their death, when the remainder goes to other heirs. But, if your spouse is much younger than you, that could be a very long time, and the underlying assets of the trust could be exhausted – leaving nothing for your children. In these situations, you may want to consider properly owned life insurance with your children as beneficiaries.
These are just two of the many ways that life can complicate your estate planning needs, regardless the state of the estate tax.