King & Wood, P.A.

What are Estate Planning Mistakes to Avoid?

“There are a variety of issues estate planning attorneys seek to mitigate when creating an estate plan for their clients.”

Preventable problems in estate planning can undo the best planning, but understanding the estate planning process at a high level can ensure goals are achieved, explains a recent article, “How To Avoid Common Estate Planning Issues, Including Probate,” from Forbes. Probate is the court’s process of determining how assets are distributed when someone dies. Probate can be costly, time-consuming, and emotionally challenging, adding to a grieving family’s stress. Many try to avoid it when possible.

There are a number of estate planning techniques used to avoid probate.

Listing beneficiaries accurately. When an asset has a beneficiary designation, such as life insurance or certain retirement accounts, these assets pass directly to the beneficiary. Other beneficiary accounts include Transfer on Death (TOD) and Payable on Death (POD) accounts. Any time an asset has the option to name a beneficiary, be sure to name both a primary and successor beneficiary.

Create a living trust. An estate planning attorney can create a living trust, also referred to as a revocable trust. Once the trust is created, assets must be re-titled to become the property of the trust. Failing to retitle assets means the person still owns them, not the trust, which means the trust won’t work as intended.

After the estate planning attorney has created all the necessary documents, the attorney will usually provide a detailed list of instructions describing how to title and/or list beneficiaries on assets. If one asset is titled incorrectly or does not have the proper beneficiary designation, then probate, unnecessary income taxes, or estate taxes could follow.

Some folks feel overwhelmed to complete these tasks, but their attorney can walk them through the process.

Mistakes often happen as a result of changes occurring over time. For example, if retitling assets isn’t done shortly after directions are given, it’s easy to forget the details. Over time, people open new accounts, close old accounts, and purchase new assets. Any changes must be correctly titled or have the appropriate beneficiary designations for the estate plan to work as planned.

The solution is simple: pay attention to details. Create a comprehensive list of all assets, including life insurance policies. Conduct regular reviews of beneficiary designations and titles. Verify titles and beneficiary designations to be sure they align with your estate plan. Make copies of completed documents. There have been instances when beneficiary designations are correct, but the financial institution loses the instructions.

Finally, review your estate plan with an experienced estate planning attorney at least every three years. Estate and tax laws change, as do life circumstances. Even if you have property and assets correctly titled and beneficiaries properly listed, there could be unexpected estate planning issues. Ensure your estate plan will work as intended and avoid common mistakes before they occur.

Reference: Forbes (June 28, 2023) “How To Avoid Common Estate Planning Issues, Including Probate”

Can You Keep a Vacation Home in the Family for Generations?

“The family vacation home is often a point of pride, a place for reconnecting and making memories. A vacation home, whether it’s in the mountains, near the sea, on a lake, or on a farm, can have sentimental as much as economic value.”

As terrific as it may be to have a family vacation home, the same reasons it’s a wonderful thing can make it one of the most complex assets to pass to future generations. Everything’s great when the parents are alive and well. Still, over time this changes, as explained in a recent article, “Do family vacation homes foster closeness or animosity?" from The Press-Enterprise.

When parents are relatively young and hosting their children and visitors, life at the family vacation home is easy. Everyone knows the routines of the day, who cooks, who cleans, who is in charge of the barbeque, and where the best swimming is. Parents envision their children’s children coming every summer and enjoying the same relaxed bonding experience.

But life changes, especially as generations pass on. Leaving the family vacation home to all children in equal shares in a will or even in a trust could be a prescription for a family disaster. An idyllic place could turn into a family feud.

Who will be in charge of the vacation home? The eldest child, or the one who lives closest to it? Is one child wealthier than the others and more able to shoulder the costs of maintaining a second home? And as grandchildren grow up and have families of their own, deciding who will have access to the house during peak summer weeks can become acrimonious.

Start by having a family conversation to determine if the children (and grandchildren, if appropriate) want the vacation home to remain in the family. Do they all want it, and how do they expect to use it? Are they considering tearing it down and building a larger home, or could it become rental property?

If only one child wants the home, do they want to inherit it instead of receiving any other inheritance? Are there enough assets to equalize the gift? If not, you could give the child who wants the property the right to buy it from the others or your trust upon your death.

If more than one child is interested in the property, you’ll want to talk with an experienced estate planning attorney to plan the property’s future.

Any time more than one person is going to own a property together, they need to have an agreement detailing the rights and obligations of co-ownership. If the decision is made to keep the vacation home in the family, it may be best to leave it in a trust with specific terms for the use of the property, naming a trustee to manage the trust—one or two people, but not everyone in the family. The trust language must address how and when the property can be sold, who will pay for property taxes, utilities, minor and major repairs, and the terms for passing the property through generations.

If the family decides they’d prefer the property to become a rental property to generate income, consider putting it into a Limited Liability Company (LLC). Each of the heirs may have a membership interest in the LLC, one is designated as a manager, and an operating agreement is created to set out the terms for selling or otherwise transferring a membership interest.

An asset as special as a family vacation home needs and deserves planning for the future. Meet with an experienced estate planning attorney to create a plan for the future, then go and enjoy your time with the family.

Reference: The Press-Enterprise (July 2, 2023) “Do family vacation homes foster closeness or animosity?"

Pros and Cons of a Will vs. a Trust

“Either a will or trust can be the foundation of your estate plan. If it’s a trust, it’s usually a revocable living trust.”

There are many estate planning strategies available for passing your financial legacy across generations, but what works best for one family may only work for some. Some of these estate planning tools work best together, says the recent article, “Which Is Best For Your Estate Plan: A Will Or Trust?” from Forbes. One of the key differences between a will and a trust? Property passed through a will goes through probate, and property owned by a trust avoids probate.

There are pluses and minuses to probate. The best-known disadvantage of probate is its cost and the time it takes to settle matters. Probate requires a complete inventory of the estate’s assets and liabilities to be compiled and submitted along with the will to the court. The court then reviews these documents and allows people to challenge the will. Assets may not be distributed to heirs until the court approves.

There are fees associated with probate; in some states, going through probate can be costly, even if the estate's total value is small. Probate is a streamlined process in other states, making it less expensive and time-consuming. These states reserve the traditional lengthy process of probate for high-value estates. Your estate planning attorney will know the process in your jurisdiction.

Another issue for heirs is the lack of privacy in the probate process. Once the will is filed with the court, it is open to the public. Many celebrity wills are available online. One famous American actor and singer, Bing Crosby, is said to have revised his estate plan by moving most of his assets to living trusts after his first wife died and details of her will became public.

Many wealthy people and celebrities transfer most assets into trusts to avoid publicity. However, the public scrutiny of a will and probate has certain advantages. Probate provides checks and balances. In addition to the court reviewing the details, heirs and potential heirs can see the asset inventory presented to the court and the details of the estate’s distribution. This provides an opportunity to see if assets are missing or if someone seems to have persuaded the decedent to change the terms of a will.

A will is more likely to be challenged than a trust since trust details remain private. The rules for challenging wills are well-established. Some people choose to use a will because it seems easier to change their minds about how they want assets to be distributed. With a trust, you have to name the trust as a legal property owner. This is done by transferring the legal title of the property to the trust. The trust must have legal title to assets to be funded and to work properly.

A revocable or living trust provides for a smoother transition of management and property ownership. The grantor—the person who establishes the trust—serves initially as the trustee and manages the property. Successor trustees named in the agreement automatically take control of the trust if the grantor becomes incapacitated or dies. There is no court involvement.

When a will is used, title to property first passes to your estate and eventually to final beneficiaries. If you become disabled, whoever holds your power of attorney must present it to financial institutions and have the POA accepted before they can manage assets. If there’s no POA in place, the courts will need to be involved in a conservatorship or guardianship proceeding.

Trustee transitions aren’t always smooth, as financial institutions must decide to accept the authority of a successor trustee, which requires a high degree of substantiation before recognizing the trustee’s authority.

Each estate plan needs to be designed for the needs of the individual situation, and all the details must be carefully managed. By working with an experienced estate planning attorney, your family and your legacy will be protected, and your goals for efficiency and privacy can be met.

Reference: Forbes (June 25, 2023) “Which Is Best For Your Estate Plan: A Will Or Trust?”

It Can Take Time to Learn about Inheritances

“You may not always know it if you have an inheritance coming. And in some cases, you may not even know the individual has passed on.”

Often, a distant relative is notified by an estate’s executor or administrator of the death of a relative and any steps to be taken to claim their inheritance. A recent article from yahoo! finance, “How Long Will It Take For My Beneficiaries to Get Notified After Death?” explains how the process works. Every state has its own laws on this topic, but there are some basics you’ll need to know if you’re facing this situation.

Estate and property law are two of the most state-specific sets of laws; in many cases, these laws conflict with those of other states. An experienced estate planning attorney will be able to help figure out what your next steps are. And don’t start spending your inheritance too quickly—a number of things have to happen before your inheritance—if you indeed have one—arrives.

When someone dies, the total amount of their property, cash, assets, and debts is called their “estate.” The court-ordered process of distributing the estate is known as “probate.” If there was a will and an executor was named, the executor is in charge of administrating the estate. If there was no will, the person died intestate, so the court will name an administrator. The chief difference between an executor and an administrator is mainly the title. Both are responsible for paying the estate’s debts and distributing assets to named and legal heirs.

In some states, the executor, heirs, and any interested parties must file for probate within 30 days of the decedent’s death. In other states, you have three years to file for probate. However, in all cases, heirs may not be formally notified of their inheritance until the probate process begins and the executor or administrator starts working on the estate.

Once probate begins, the executor must notify all heirs and potential heirs of their inheritance. If there is a will, the most common rule is for the executor to notify all known and named beneficiaries within 90 days of the start of probate. However, this can also vary from 15 days from the first hearing date to a year or more for notifications.

These rules apply only to known beneficiaries. During probate, the executor may learn of new or unresolved inheritance issues, and then heirs are notified as they are identified.

If the estate has no will, the rules are different. First, the administrator must identify potential beneficiaries based on state law and family records. Sometimes the only source for this information comes from family members who come forward and identify themselves. The administrator is required to make a public notice of the deceased so any unknown heirs have a chance to come forward. The notice usually runs in a local newspaper, and different states have different rules regarding how long it needs to appear in print.

After the heirs have been notified, there is a waiting period for any distributions. This is common, as real estate or other high-value assets may be sold and their value added to the state. If the state requires a waiting period, it’s often six months from when heirs are notified and when they can receive their inheritance. This allows enough time for any interested parties to come forward and contest the inheritance.

An experienced estate planning attorney can help the executor or administrator move through the process of settling the estate.

Reference: yahoo! finance (June 27, 2023) “How Long Will It Take For My Beneficiaries to Get Notified After Death?”

Married Couples can Use Estate Tax Exemptions in Estate Planning

“A primary goal of most married couples when contemplating basic estate planning documents is to ensure that the surviving spouse, and commonly, the couple's children and grandchildren, are supported financially.”

Estate tax avoidance and mitigation are central considerations for financial security for surviving spouses. According to a recent article from The National Law Review, “Basic Estate Tax Planning for Married Couples: Opportunities For Use Of Estate Tax Exemptions,” the first spouse may leave property of unlimited value to the surviving spouse without incurring any estate tax upon the death of the first spouse. This unlimited marital deduction shields assets from estate taxes and helps support the surviving spouse. Assets can be distributed directly to the surviving spouse or through an indirect transfer to a qualifying trust for the surviving spouse’s benefit.

Most couples use trusts for asset protection, most commonly for the preservation of assets for children from a prior marriage and asset management help for the surviving spouse. The marital deduction is a valuable estate tax avoidance tool for married couples.

However, estate tax law is not generous for non-spouse beneficiaries. Legislation passed in 2013 allowed individuals to leave assets totaling $5 million in value (indexed to inflation since 2011) to non-spouse, non-charitable beneficiaries and then doubled this amount following the Tax Cuts and Jobs Act to $10 million. However, if additional legislation is not passed before the sunset date of January 1, 2026, this amount will be cut in half.

In 2013, Congress made the portability of a spouse’s estate tax exemption permanent. This allows the surviving spouse to capture and use the first decedent spouse’s remaining estate tax exemption and the surviving spouse’s own exemption. To capture this estate tax exemption, an estate tax return must be filed in a timely manner after the death of the first spouse.

If spouses have a total estate exceeding available exemptions, they may use what is known as the “Credit Shelter Trust Planning” or “Optimal Marital Deduction Planning.” A trust is established, funded with assets of the first spouse to die, to use the spouse’s estate tax exemption. Assets in the trust are available to the surviving spouse for life but are not included in the survivor’s taxable estate upon their death. The goal benefits the surviving spouse and reduces any estate tax to maximize benefits for the children and grandchildren.

Another frequently used tool is the “disclaimer” plan, which allows the survivor to move certain assets into a trust for the survivor’s benefit rather than receiving assets directly. For married couples with estates valued at less than their available estate tax exemptions, a disclaimer plan provides the “all to spouse” plan and the option to implement a tax-advantaged trust. All assets are left to the survivor; then, based on the value of the first spouse’s estate, the surviving spouse may choose to disclaim the first spouse’s assets and divert them to a tax-advantaged trust.

It must be noted that there is no “one-size-fits-all” plan for married couples who wish to care for their surviving spouse, children, and grandchildren. It’s important to understand the basic estate tax avoidance or mitigation tools to create an estate plan to consider the couple’s planning goals and values. An experienced estate planning attorney can create a comprehensive estate plan to suit each family’s needs.

Reference: The National Law Review (June 24, 2023) “Basic Estate Tax Planning for Married Couples: Opportunities For Use Of Estate Tax Exemptions”

What Is Multigenerational Estate Planning?

“When multiple generations live on the same property, issues over ownership, who inherits what and who provides what can get complicated fast.”

Multigenerational planning is common today, where grandparents, parents, and children live in the same home. With more than two generations living in one residence, estate planning issues can arise, as explained in the recent article from Kiplinger, “How to Handle Estate Planning for Multigenerational Living Arrangements.”

For instance, if a grandparent pays for a separate apartment on their child’s property, who owns the apartment? What if an adult child living with elderly parents pays for updates on the property or provides caregiving services to the parents? Should these arrangements lead to unequal inheritances? All of these issues can be addressed through estate planning.

The first issue to address is home ownership. Should the title be taken jointly, as tenants in common, with a life estate, in trust, as a family partnership, or in some other manner? Which family members are allowed to live in the home? And again, how will this arrangement impact inheritances?

For many families, using a trust to detail all aspects of use and ownership is the best solution. The trust document can address everything, including the right of first refusal, language governing who has priority to buy the property upon the death of the parents, equalization language between beneficiaries to account for gifts to certain family members during life, and tax provisions to ensure beneficiaries pay applicable taxes, equally or proportionally.

The trust may also be used to address the incapacity or death of a family member and what will happen to the property for future generations. The level of detail can be extremely important when dealing with multigenerational shared real estate purchases and uses.

For some families, an LLC (Limited Liability Corporation) or LLP (Limited Liability Partnership) allows for easier fractional property ownership. LLCs and LLPs also help with asset protection and maintaining privacy.

An LLC operating agreement specifies which members will be in charge of the daily operation of the property, payment of expenses, and how ownership interests are divided. Intrafamily loans can be leveraged to pay for improvements on the property, and the agreement can be used to address many different scenarios for the family.

If one child provides care for an aging parent, or a grandparent provides regular daycare for working parents, should these arrangements be monetized and factored into the estate plan? What about a sibling who does not live in the home and does not provide any care for elderly parents or young children? There is no one answer for these or the many other situations arising from multigenerational living arrangements.

An experienced estate planning attorney can ensure your estate documents align with your wishes and address these issues. Often, having a professional in the room when mapping out a plan can alleviate some family dynamics, making these matters less emotional.

Reference: Kiplinger (June 29, 2023) “How to Handle Estate Planning for Multigenerational Living Arrangements”

What is a Pour-Over Will?

“This type of will can ensure that your assets go where you want them to. However, there are many misconceptions about them.”

You may have come across the term “pour-over” will in a conversation with an estate planning attorney, especially as it relates to revocable living trusts. When written alongside a revocable living trust, a pour-over will ensures that certain unallocated assets will be, in the end, accounted for, according to a recent article, “4 Concepts You May Be Getting Wrong About Pour-Over Wills” from The Street.

Assets not already transferred to a trust during your life will be transferred or “poured over” into the trust after going through probate after your death.

Probate is the court-supervised legal process used to verify your will and appoint an executor to handle estate affairs.

The goal of the pour-over will is to provide a safety net for any imperfections or oversights during the estate planning process. They are popular for this reason. However, they are also poorly understood and often incorrectly used. Here are four key misconceptions and mistakes to be aware of.

Pour-over wills are unnecessary if you have a revocable living trust. Not true. Many people make the mistake of thinking they don’t need a pour-over will because of their revocable living trust. However, this is wrong. Very few people are as diligent about updating their trusts as they need to be and often die without finalizing the transfer of all assets into their trust. People also simply forget to make transfers. The pour-over will solves this problem.

The executor doesn’t matter because I’m going to fully fund my revocable living trust. Wrong again!  Life often gets in the way of the best of intentions. For example, if you have a large digital asset, like crypto, and completely forget to transfer it into your trust, your executor will be in charge of it. As an aside, you’ll want your executor to be someone knowledgeable about crypto and finances.

I have a living trust and pour-over will. I’m done with estate planning. This would be like saying you had your car washed and won’t ever have to wash it again. The pour-over will takes assets left in your name and moves them into your trust after your passing. The pour-over is a safety net. However, it’s still got to be kept current. Estate planning attorneys recommend a review of your plan every three to five years or whenever there’s a trigger event, like death, divorce, or remarriage. A trust-based estate plan needs to be reviewed every time a new asset is acquired.

There’s no need to do anything in the event the living trust hasn’t been set up when I pass because of the pour-over will. Wait, what? Not true. It’s always possible the disposition of assets into the trust could be invalid or inoperative. To be sure, name the same beneficiaries as presently provided in the trust agreement as contingent beneficiaries in your pour-over will. This will ensure that your objectives are realized, even if somehow a defect in the trust instrument invalidates the intended transfer.

The pour-over will can be extremely valuable in completing your estate plan. However, it still requires reviewing every three to five years to avoid any problems. Talk with your estate planning attorney to see how this can work to strengthen the rest of your estate plan.

Reference: The Street (June 14, 2023) “4 Concepts You May Be Getting Wrong About Pour-Over Wills”

How Do You Split Property Among Heirs?

“If you thought that doing your taxes got complicated when you acquired more assets, wait until you try to split them up among multiple children when planning their inheritance.”

Deciding how to divide assets among heirs is one of the most challenging aspects of estate planning, especially when the estate includes complex holdings like real estate, family businesses and investments not easily divided, according to a recent article from GO Banking Rates, “I’m a Financial Advisor: Here’s How to Equally Divide an Inheritance Among Heirs.” Navigating this process is something you want to get right the first time to prevent heirs from becoming embroiled in family fights and, worse, litigation.

The first decision is whether the goal is equal or equitable distribution. Equality means that everyone gets the same inheritance, regardless of their situation. Equity is a bit more challenging, since everyone inherits what they need to succeed, and chances are that each of their needs are different.

Considering the needs and individual circumstances could be a more suitable way to help your heirs.

Consider one adult child who enjoys good health, and owns a business and a mortgage-free house, while their sibling cannot work and depends on government benefits. An equal solution would split the inheritance equally, but in an equitable distribution, the child who can’t work would receive more financial support and a Special Needs Trust to protect their benefits.

Trusts are the preferred method of estate planners because they bypass probate, offer tax advantages and protect assets from creditors. They also allow grantors to ensure distribution as desired. Trusts can be revocable or irrevocable, living or testamentary, and can be designed to include custom rules to suit any situation.

However, there are two asset classes presenting challenges to distributing equitably, even with a trust.

Distribution of complex holdings like real estate property and family-owned businesses requires considerably more planning than simply splitting a bank account. Consideration needs to be given to the dynamics of beneficiaries and what potential issues may arise.

In the case of a family business, the challenge is deciding whether or not to liquidate the property and distribute the proceeds or determining how to establish ownership among the siblings.

If one or more heirs want to continue to own the business and others do not, a buy-sell agreement will be needed so they can buy the other’s shares at a predetermined price, thereby ensuring all receive fair compensation. A professional appraisal will be critical to establishing the current market value, ensuring fair distributions.

Another way to resolve this is to create a Family Limited Partnership (FLP) to maintain control within the family, while distributing profits equitably.

What if heirs want vastly different outcomes, and you’d like to simplify matters? One answer is to have crystal-clear language in your will stating if beneficiaries can’t reach an agreement on what should happen to the business, it will be liquidated and the proceeds divided.

An experienced estate planning attorney will help determine the best way to achieve your goals based on your family’s situation and your wishes.

Reference: GO Banking Rates (June 8, 2023) “I’m a Financial Advisor: Here’s How to Equally Divide an Inheritance Among Heirs”

What are the Main Reasons for Using a Trust?

“When you think of a trust, you may have visions of contentious family gatherings in an attorney’s office after the death of a patriarch or matriarch.”

Despite these dated images, trusts aren’t just for the wealthy. Having one—or more—in your estate plan can make sense, regardless of how much money or property you have. According to a recent article from Fortune, “Understanding trusts: An important estate planning tool for everyday Americans,” estate planning is less about dying and more about living. Most families create estate plans to take care of their families. A trust can help achieve this goal by providing privacy, asset protection and avoiding probate.

A trust is a legal document creating a three-way relationship between three different parties: the trust, the trustee and the beneficiaries. The trust is the legal entity holding title to the assets in the trust. The trustee is the trust’s decision maker, and the beneficiaries receive assets from the trust.

A grantor creates the trust and directs how assets will be used during the grantor’s lifetime and how those assets should pass to the beneficiaries when the grantor dies. Another reason to have a trust: assets pass directly to beneficiaries and don’t go through probate.

While the word “trust” may embody the idea of attorneys’ offices and courtrooms, they are legal and financial arrangements that most people use in their day-to-day finances. Business entities like LLC (Limited Liability Companies) have the same three-way relationship: the president of the LLC, the decision maker; the LLC itself, which owns the assets; and LLC members, who are like beneficiaries of a trust.

Your estate planning attorney will know which type of trust is right for your situation. However, they are created similarly. The grantor and their attorney agree about what kind of trust is needed, and the trust is established. The trust's language specifies how the trust assets should be managed and passed to beneficiaries. The grantor places assets inside the trust, removing them from the grantor’s ownership and estate. The grantor names a trustee who makes the day-to-day decisions for the trust, its assets and its beneficiaries. When the grantor dies, the trustee directs the assets' distribution according to the trust's terms.

Trusts offer a clear road map for your wishes, with many benefits when compared to a last will and testament.

• Most trusts avoid probate, the court-supervised process of validating a will.
• Many trusts allow the grantor to retain control of the assets while they are living. Trusts can also direct your trustee to manage the trust, if you become incapacitated.
• By removing assets from your estate, trusts can minimize estate and income taxes for beneficiaries and preserve more wealth.
• Trusts can be used to spell out guardianship nominations for young children and create plans to help children inherit responsibly.
• Certain trusts can be used to achieve specific philanthropic goals, whether leaving a small amount to a local organization or making a large grant to a national foundation.
• Trusts protect assets from legal action, creditors and certain life-altering events like divorce.
• Since the trust owns assets, the grantor’s and beneficiary’s names are not on the public record, preserving privacy.

Speak with your estate planning attorney about which trusts are appropriate for your situation and how they align with your overall estate planning goals.

Reference: Fortune (June 9, 2023) “Understanding trusts: An important estate planning tool for everyday Americans”

Estate Planning for Today’s Modern Blended Family

“The modern blended family has far more needs when it comes to estate planning than a traditional family. Here are some challenges, tips and solutions.”

If you grew up watching Leave it to Beaver, you saw a family with traditional estate planning goals and challenges, as compared to today’s Modern Family, with stepparents, stepchildren and a host of dynamics which calls for a vastly different estate plan, reports a recent article, “Comparing Estate Planning: ‘Leave It to Beaver’ vs. ‘Modern Family’” from Kiplinger.

Planning goals require identifying overall goals and concerns and identifying heirs. Are you concerned about divorce or lawsuit protection? What do your family members need? Probate will subject your estate and family to higher costs, delays and the public nature of a formal court proceeding where heirs’ names, inheritances and asset values become public information.

Failing to identify heirs or beneficiaries and their needs clearly is especially important for a blended family. This could result in your state's probate code becoming the guiding law, which may not align with your wishes. The probate code is less likely to identify desired heirs of a blended family.

Estate planning for a blended family must also address who will be authorized to make decisions in the event of incapacity to make medical decisions. Failing to do so could result in a family member whom you might not have named making important decisions on your behalf. An estate plan should include healthcare proxy and HIPAA release forms.

When correctly drafted and executed, trusts can help avoid probate. Here’s an example of how this can go wrong. A woman’s husband died. He had handled the couple’s finances. All of the assets were in his name alone. In this case, California, the probate code limited the distribution to one-third for the surviving spouse and two-thirds for the children, including one minor child. The surviving spouse felt she was a 50% owner of the combined assets and fully expected to receive control and ownership of all assets upon his death. Having assets go to children was unexpected, created financial difficulties and strained the family relationship.

Do you live in a community property state? In these states, property for married couples is characterized as community (jointly owned) or separate (owned by one spouse). Care needs to be taken by both spouses as to how properties, assets and accounts are titled.

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington are community property states. Property rights established in a community property state can still have consequences for those moving to states that don’t have community property rights. If that describes your situation, a meeting with an estate planning attorney should take place to discuss the implications for your estate property distribution.

An estate plan should be created to provide for the surviving spouse and the deceased spouse’s children. In traditional families, all assets usually go to the surviving spouse with few restrictions. In the case of second marriages, there are ways to provide for the surviving spouse. One way is to retain the deceased spouse’s assets in a trust. The trust provides for all the income to the spouse and discretionary principal distributions. A Qualified Terminal Interest Trust (QTIP) may permit the trust to qualify for the marital deduction for estate tax purposes.

The selection of trustees is an important decision for a blended family. In this case, it may be better to have a professional fiduciary who is not emotionally engaged with one side or another to alleviate any emotional baggage.

An experienced estate planning attorney will be able to guide the family through creating a comprehensive estate plan to assuage concerns about children from prior marriages receiving their rightful inheritance, while protecting the surviving spouse’s quality of life.

Reference: Kiplinger (June 12, 2023) “Comparing Estate Planning: ‘Leave It to Beaver’ vs. ‘Modern Family’”