Crucial Estate-Planning Advice For Blended Families

July 11, 2021

Mistake #3: Treating all heirs equally

Most spouses aren't financial equals when they marry, and this is particularly true for second marriages. If your new spouse moves into your house, for example, you may want your children to get the proceeds when the house is sold, rather than your spouse or your spouse's children. Similarly, if you brought more assets to the marriage, you may want more of the money to go to your heirs than your spouse's heirs.

"There's no rule that says all children have to be treated equally,” says Jason Smolen, a principal in the Vienna, Virginia, firm SmolenPlevy Attorneys and Counsellors at Law. “There are a number of reasons why parents don't treat children equally — sometimes it's an unfortunate situation where a child is disabled, either mentally or physically.” In those cases, you'll have to discuss with your spouse how to ensure that child is cared for, perhaps through an ABLE (Achieving a Better Life Experience) account or a trust

Other times, Smolen says, the problem is conduct. A child may have a gambling problem, suffer from addiction or be a compulsive spender. Some parents may simply decide that after death children are responsible for their own actions, and if they lose their inheritance by betting on Seabiscuit in the fourth race at Pimlico, well, that's the way things go.

Other parents may not be able to stand the thought of an inheritance being squandered. “Essentially, you want to regulate the flow of money to a child like that,” Smolen says. Doing so costs money: You'll need to create a trust and appoint an executor to manage the assets. A so-called “spendthrift trust” is one solution. It doles out money at regular intervals to the beneficiary and deters creditors from getting the money in the trust.

Mistake #4: Waiting until you're gone to give

If you're planning to leave money to your children, you might consider giving it to them now, rather than in your will. You'll get the pleasure of seeing them use that money while you're still on the planet.

You can give up to $15,000 per person without having to pay the federal gift tax or deal with the IRS. (Recipients typically don't pay tax on gifts.) It's an enormous break.

If you and your spouse have four married children, you can give each child and their spouse $15,000, or $30,000 per lucky couple, without triggering federal gift taxes.

In addition, the giving limit is per giver: Your spouse may also give the same amount. If you and your spouse have four married children, you and your spouse can give $60,000 per couple, for a total gift of $240,000 per year for all eight people, without triggering the gift tax.

You won't have to alert the IRS unless you exceed the $15,000 per person limit. If you do, you'll have to file Form 709. But even then you probably won't have to pay taxes on the gift because of the lifetime gift exclusion of $11.7 million per person (in 2021), or double that ($23.4 million) for married couples. If you exceed those limits, you'll owe gift taxes on the amount above the lifetime limit.

Mistake #5: Skipping the lawyer

If your assets are few and your circumstances uncomplicated, you can probably get away with going online and drafting a do-it-yourself will. It's a simple, inexpensive option — and it beats having no will at all.

But if you're older and on your second marriage, odds are good your life is anything but uncomplicated. Ex-spouses, blended families and comingled assets up the complexity quotient, as does a child with special needs or an aging parent. It may be wise to invest the time and money in getting a thorough estate plan drawn up by a professional.

While consulting an attorney comes at a cost, you'll get the comfort of knowing that you, and not a probate judge, will decide who gets what when you're gone. And you'll also know that your ex won't be spending your 401(k) money.