There is no universal estate plan that is right for every situation, and this is the most important thing to understand when you are entering into the process. You don’t have to accept limitations or take risks, because your plan can be custom crafted to suit your needs.
One situation that can be a bit complicated is inheritance planning for parents that are going to be part of blended families, and we will provide some tips in this post.
A simple will is not a good choice.
If you are entering into a second or third marriage, you may want to make a statement with regard to your absolute commitment to your new spouse. You can name them as the sole inheritor of your property in a simple will and trust them to take care of your children.
This may seem like a good idea at the time, but it is a very risky approach. Your spouse will have no particular obligation to your children, and you simply cannot predict the future.
As a response, you could utilize an estate planning tool called a qualified terminable interest property (QTIP) trust.
If you create a QTIP trust, the trustee would distribute the trust’s earnings to your spouse if you die first. You could allow for distributions of portions of the principal under certain circumstances, and your spouse could use property that is technically owned by the trust.
Your spouse would be set for life, but they would not be able to alter the terms of the trust in any way. In the trust declaration, you would name your children as the successor beneficiaries, they would assume the role after the passing of your spouse.
Pick a qualified trustee with no conflicts of interest.
Any competent adult that is willing to assume the role can act as the trustee of a trust, but this is a sensitive position under these circumstances. Trust companies and the trust departments of banks will also provide trustee services, and this can be a better choice.
A professional fiduciary will follow your instructions dispassionately, and they would have no personal interests. Plus, the assets would be managed by a qualified financial strategist.
Accept the fact that your spouse may remarry.
When you are making your planning decisions, you should consider the fact that your spouse may eventually remarry. Ask yourself about the dynamic that may exist under those circumstances, and factor this possibility into the decision-making process.
Consider direct bequests to your biological children.
A qualified terminal interest property trust can be an effective solution, but its utilization creates a certain tension. After all, the children will not receive their inheritances until the passing of the first beneficiary, and this is a bit awkward for want of a better word.
To account for this dynamic, you may want to consider direct bequests to your children so they receive a portion of their inheritances shortly after your death.
Account for health care decision making.
There can be disagreements between your spouse and your children with regard to health care decisions that are made on your behalf if you become unable to make them yourself. Your plan should include advance directives for health care to nip this eventuality in the bud.
You can state your preferences with regard to the use of life support in a living will, and you can name someone to make medical decisions on your behalf in a durable power of attorney. The power of attorney would apply to situations that are not covered in the living will.
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- Why Would I Want to Make a Trust Irrevocable? - May 10, 2022
