Estate Planning for Blended Families – Annapolis and Towson Estate Planning

Today, a blended family is more common than ever, with stepfamily members, half-siblings, former spouses, new spouses and every combination of parents, children and partners imaginable. Traditional estate planning, including wills and non-probate tools like transfer on death (TOD) documents, as valuable as they are, may not be enough for the blended family, advises a recent article titled “Legal-Ease: Hers, his and ours—blended family estate planning” from limaohio.com.

Not too long ago, when most people didn’t take advantage of the power of trusts, couples often went for estate plans with “mirror” wills, even those with children from prior marriages. Their wills basically said each spouse would leave the other spouse everything. This will would be accompanied by a contract stating neither would change their will for the rest of their lives. If there was a subsequent marriage after one spouse passed, this led to problems for the new couple, since the surviving spouse was legally bound not to change their will.

As an illustration, Bob has three children from his first marriage and Sue has two kids from her first marriage. They marry and have two children of their own. Their wills stipulate they’ll leave each other everything when the first one dies. There may have been some specific language about what would happen to the children from the first marriages, but just as likely this would not have been addressed.

It sounds practical enough, but in this situation, the children from the first spouse to die were at risk of being disinherited, unless plans were made for them to inherit from their biological parent.

Todays’ blended family benefits from the use of trusts, which are designed to protect each spouse, their children and any child or children they have together. There are a number of different kinds of trusts for use by spouses only to protect children and surviving spouses.

Trust law requires the trustee—the person who is in charge of administering the trust—to give a copy of the trust to each beneficiary. The trustee is also required to provide updates to beneficiaries about the assets in the trust.

A surviving spouse will most likely serve as the trustee when the first spouse passes and will have a legal responsibility to honor the shared wishes of the first spouse to pass.

If you would like to learn more about the many different types of spousal trusts, and which is best for your situation, contact us and schedule a time to speak with one of our experienced estate planning attorneys.

Reference: limaohio.com (Aug. 20, 2022) “Legal-Ease: Hers, his and ours—blended family estate planning”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Happens to Stock Options when Someone Dies? – Annapolis and Towson Estate Planning

Once your business grows, so does the pressure to make good financial decisions in the short and long term. When you think about the future, estate and succession planning emerge as two major concerns. You are not just considering balance sheets, profits and losses, but your family and what will happen to them and your business when you are not around. This thinking leads to what seems like a great idea: transferring stock or LLC membership units to one or more of your adult children.

There are benefits, especially the ability to avoid a 40% estate tax and other benefits. However, there are also lots of ways this can go sideways, fast.

Executing due diligence and creating an exit plan to minimize taxes and successfully transfer the business takes planning and, even harder, removing emotions from the plan to make a good decision.

An outright transfer of stock or ownership units can expose you and your business to risk. Even if your children are Ivy-league MBA grads, with track records of great decision making and caring for you and your spouse, this transaction offers zero protection and all risk for you. What could go wrong?

  • An in-law (one you may not have even met yet) could try to place a claim on the business and move it away from the family.
  • Creditors could seize assets from the children, entirely likely if their future holds legal or financial problems—or if they have such problems now and have not shared them with you.
  • Assets could go into your children’s estates, which reintroduces exposure to estate taxes.

No family is immune from any of these situations, and if you ask your estate planning attorney, you will hear as many horror stories as you can tolerate.

Trusts are a solution. Thoughtfully crafted for your unique situation, a trust can help avoid exposure to some estate and other taxes, allocating effective ownership to your children, in a protected manner. Your ultimate goal: keeping ownership in the family and minimizing tax exposure.

A Beneficiary Defective Inheritance Trust (BDIT) may be appropriate for you. If you have already executed an outright transfer of the stock, it is not too late to fix things. The BDIT is a grantor trust serving to enable protection of stock and eliminate any “residue” in your children’s estates.

If you have not yet transferred stock to children, do not do it. The risk is very high. If you have already completed the transfer, speak with an experienced estate planning attorney about how to reverse the transfer and create a plan to protect the business and your family.

Bottom line: business interests are better protected when they are held not by individuals, but by trusts for the benefit of individuals. Your estate planning attorney can draft trusts to achieve goals, minimize estate taxes and, in some situations, even minimize state income taxes.

Reference: The Street (June 27, 2022) “Should I Transfer Company Stock to My Kids?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys