Giving Strategies for Blended Families
When making distributions of assets, pre or post death, there are several useful strategies that can be used to make the distribution a little easier on your loved ones.
You can set up a trust in your will to entitle your spouse to receive all the income generated by the trust during his or her lifetime. No one other than your spouse may use any of the capital of the trust so long as he or she is alive. Upon the death of the second spouse, the assets will be distributed according to the wishes set out in the will of the first spouse. In addition, the assets roll over to the spousal trust without triggering capital gains, which creates an important tax advantage.
A simple option may be to leave a portion of your estate to your spouse and separate portions to each of your children. However, it’s imperative that you speak with an estate lawyer to determine how much your spouse may be entitled to and to ensure no claim is made against assets intended for your children.
It’s also crucial to know the real value of your estate in apportioning assets, as any difference in value can have consequences for your beneficiaries. For example, if you leave a specific bequest to your spouse and divide the residue among your children, all the taxes, debts, and expenses of the estate come out of the residue, as well as any shortfall. Specific gifts get paid first, not pro rata, and there have been estates where the residue has ended up being nil. The message here is to do the math in advance, and reconcile it annually to ensure everything will work as you intend it to.
Since life insurance generally falls outside of an estate, unless there’s no named beneficiary or the estate is the named beneficiary, it may be feasible to create equity among your loved ones by making your children the beneficiaries of life insurance policies and leaving your estate to your spouse, or to your spouse and children. This will ensure each party receives the desired amount.
Having said this, you don’t want to do this in reverse, leaving life insurance to your spouse and your estate to your children, as your spouse will be able to make a claim against the estate in addition to the life insurance proceeds.
This strategy also may not work if your children are young, since the Public Trustee may end up with the authority to manage the funds until your children attain the age of majority.
Guardianship will also be a huge factor in blended families, particularly if there are children from previous relationships as well as from the current one. It’s important for you and your spouse to discuss this carefully and make a decision that’s right for your new family.
Invitation for Discussion:
If you would like to discuss this article in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Tax group at Nerland Lindsey LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.