With the IRS’s announcement that the first $11.58 million (in 2020) of a taxable estate is free from estate taxes, most people won’t have to worry about paying estate taxes. Therefore, what’s the biggest reason to have an estate plan?
Earlier this year, a survey was conducted at the 53rd annual Heckerling Institute of Estate Planning, a prestigious legal and financial conference that attracts leaders in the field of estate planning. For the second year in a row, family conflict was identified as the biggest threat to estate planning, reports Investment News in the article “Reducing potential family conflicts.”
Statistics show that there are more blended families in the U.S. than ever before, so estate planning needs to address those issues.
The increase in blended families has led to an increase in family conflicts. While open and honest communication is the key to any kind of conflict resolution, it’s particularly sticky when it comes to blended families. For most families, it’s a good idea to talk openly about estate planning, rather than waiting until one of the spouses has passed and explaining to the biological and stepchildren how the assets are being distributed. Discussing the estate plan before anyone dies, at the very least gives everyone a chance to voice their opinions, even if no changes to the spouse’s plans are made.
How do you minimize conflicts within blended families? One way is with a prenuptial agreement, which is executed before marriage and clarifies the financial rights of each spouse, in the event of divorce or death. This is especially useful, when there is a disparity in wealth or age between the couple.
However, not everyone is willing to have a prenup, so estate planning is the best way to resolve problems. And even if they do, family conflicts can still crop up. Let’s say Gary and Helen are married, each with children from a previous marriage. Gary wants to give his entire estate to Helen when he dies. If Gary dies first, there’s no legal reason for Helen to give any of Gary’s assets to his biological children.
There are any number of solutions. If Gary really wants to cut his children out of his will, he can talk with them and explain his thinking. He can also have an estate planning attorney include a “no contest” clause in his will. If any named beneficiary challenges the will, they will lose any inheritance and are treated legally, as if they have predeceased the decedent. Gary could also use a revocable living trust, which would avoid the estate being probated and deny the children an opportunity to challenge his will.
A better solution would be to craft estate planning documents that benefit both Gary and Helen’s children. Harry’s children could receive a partial outright distribution when Gary dies, with the remaining estate passing to Helen. A trust could be created for Helen’s benefit, but the remaining trust assets could go to Gary’s children when Helen dies.
There are many different ways to resolve this issue with an eye to minimizing conflict among children in blended families. If the parents are truly invested in keeping their children together as a family, it is worth the effort to create an estate plan that cares for the spouses and all of the children. An estate planning attorney can create a plan to accomplish your goals for the entire blended family.
Reference: Investment News (December 9, 2019) “Reducing potential family conflicts”