Sep28

Estate Planning for the “Modern” Family

We all know that the 1950’s television image of the typical American family was simply not true for many families, and it never has been. There have always been divorces, second marriages, children born out of wedlock, and so on throughout human history. The only real difference at the moment is we are more open about it and the issues that often accompany blended families, including issues related to estate planning.

The challenges of planning for what happens to your estate only grow more complicated when the natural objects of your affection and bounty include a spouse and children you had with someone who is not your spouse. Fortunately, there are solutions to most problems a complicated family presents, but to find the right one requires a great deal of introspection and self-awareness about what your goals are and what you think is best for your loved ones.

Some complicated families are easier to plan for than others, such as when both spouses have established estates and children, and they can formally agree through a marital agreement that, “What’s mine is mine and what’s yours is yours,” thereby avoiding the natural tension between sharing an estate between a surviving spouse and children from another relationship.

And sometimes the complicated family is filled with individuals who all get along and everyone shares and all the children are treated as belonging to both spouses regardless of biological origin. And sometimes that works. And sometimes it doesn’t.

Planning for when it doesn’t work involves balancing your interests. You want to provide for your spouse, but you don’t want to exclude your own children, or allow your spouse to exclude them. That requires careful planning which keeps assets available to your spouse but does not let your spouse have the power to redirect or squander those assets to the detriment of your children.

Putting Assets in Trust

The most common technique is to leave the assets in trust for the surviving spouse with restrictions on how the spouse can access them. Maybe the spouse is the trustee, or maybe a professional or third party trustee is installed to oversee administration. In any event, the spouse’s authority to withdraw trust property is limited to certain basic living standards, such as health, education, maintenance and support. The spouse is not given discretion to spend whatever whenever.

Then at the spouse’s death the remaining trust assets get distributed to the children, maybe even including the spouse’s children, or not. The point is that you control what happens to the trust assets at your spouse’s death, not your spouse. That prevents any disinheritance situations in the event that your spouse and your children fail to get along after your passing, which happens more often than you would think.

The Florida Elective Share Law

The primary alternative to a trust for the surviving spouse is to divide the estate with one half (or other percentage) going to the spouse and the rest going to the children. The key to this plan is to make sure the spouse gets enough of the estate to prevent any attempt at choosing an Elective Share.

The Elective Share is what Florida law says a surviving spouse is entitled to upon the death of the other spouse, at a minimum. That minimum amount is 30% of the estate, unless there is a marital agreement waiving rights to the Elective Share or otherwise limiting rights to the estate. Therefore, any plan to grant a share of the estate to the surviving spouse along with the kids needs to make sure the spouse gets at least 30%.

The need to meet the Elective Share threshold can also be a problem when leaving assets in trust for the surviving spouse because assets left in trust are not necessarily taken at full value when calculating what the Elective Share would otherwise let the spouse have. For example, choosing to leave half the estate to your spouse in trust for his lifetime and leaving the other half to your children may not work for Elective Share purposes because the 50% left in trust for your spouse may not be valued at 30% of the total value of your estate.

The rules are as complicated as some family arrangements, and that is why it is critical to consult with your professional advisors when designing your estate plan.

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