Individuals and Families with Complex Estates (Page 1)
Personal Planning Topics
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Blended Family Considerations
Developing a good plan of stewardship for blended families is more of an art than a science. Careful consideration is needed for what happens if one of you passes away and the other survives, as you want to ensure your spouse’s needs are met while protecting inheritance for children from a previous marriage.
Many blended families design their estate plan so that when the first spouse dies, their portion of the estate is left in an Asset Protection Trust (APT) or B-Trust. An APT is a type of trust designed to protect the trust's assets from creditors and other claims, ensuring the assets are used for the intended beneficiary. Any assets remaining in the APT when the survivor dies are then passed to the first spouse’s children. Additionally, should the survivor remarry, funds in the APT will not be comingled into the new marriage, protecting the first spouse’s children from being accidentally disinherited. Due to the complexity and sensitivity of such a trust, typically, the trustee is not the surviving spouse but instead a third party. As with other trusts, you would work with an attorney to draft these provisions into your documents.
Providing for a Child with Special Needs
If your child receives government assistance due to special needs, careful consideration should be made when passing on inheritance. A Special Needs Trust (SNT) is designed to provide supplemental support without disqualifying your child from receiving government assistance. SNTs are typically used to pay for daily living expenses such as caregiving, entertainment, phone bills, and clothing. However, when providing funds for food or shelter, there may be complexities depending on the type of government support your child receives. Consult with an attorney who understands the nuances of SNTs as well as government support programs like SSDI and Medicaid. National health organizations that support those with your child’s disability may also have resources available on the topic.
Your will or trust can be designed to create an SNT, or you can create an SNT while you are still alive to establish a historical record for the successor trustee. If you choose not to set up an SNT, you may prefer a Children’s Trust to provide for your child’s needs without government involvement. This may be a fit for your family if you expect reasonable medical and living costs throughout your child’s life. Also, consider whether your individual situation merits appointing a legal guardian to care for your child after you’ve passed.
Providing for a Wayward Child
Planning for a wayward child may be your greatest prayer concern as you develop the right plan of stewardship for your family. The Old Testament takes a hard stance against wayward children, while the New Testament extends grace.
He who brings trouble on his family will inherit only wind, and the fool will be servant to the wise.
Proverbs 11:29 (NIV)
But while he was still a long way off, his father saw him and was filled with compassion for him; he ran to his son, threw his arms around him and kissed him. The son said to him, 'Father, I have sinned against heaven and against you. I am no longer worthy to be called your son.' But the father said to his servants, 'Quick! Bring the best robe and put it on him. Put a ring on his finger and sandals on his feet. Bring the fattened calf and kill it. Let’s have a feast and celebrate. For this son of mine was dead and is alive again; he was lost and is found.' So they began to celebrate.
Luke 15:20-24 (NIV)
It may be possible to design two separate plans for your wayward child. The first plan is drafted into your will or trust now based on the current situation. The second plan outlines changes to your will or trust should the situation improve or deteriorate further. Such a plan would require attorney involvement; however, drafting contingencies into your legal documents based on future changes can be difficult, as there are often too many variables to consider and quantify.
Providing for a Spendthrift Child
If you have concerns about a spendthrift child's ability to manage money, consider utilizing a Children’s Trust when passing on an inheritance. A Children’s Trust is a legal arrangement where assets are held and managed by a trustee for the benefit of your children; in this case, you would use this trust to distribute their inheritance in increments. This approach ensures they don’t receive too much too soon.
"An inheritance quickly gained in the beginning will not be blessed in the end."
Proverbs 11:29 (NIV)
If you have multiple children, this provision could be designed as one trust for all your children, eliminating the spendthrift child feeling singled out. However, your other children would have to wait to receive the inheritance incrementally through the trust. You also have the option to create separate plans of inheritance and create an individual trust specifically for the spendthrift. Incorporating these trusts into your estate plan would require attorney involvement in drafting your documents. Pray through how best to design your plan so that your children’s relationships can thrive long after the Lord calls you home.
Living Outside the United States
If you live outside the United States, special plans will need to be drafted into your documents, especially if you have minor children. Things to consider would include transferring your accounts across borders, where your children would go and how they would get there, and if there are any local laws that would impact your plans. It’s possible you may be required to have a separate will drafted in your country of residence. Every country is different, so it’s highly important to seek out professionals in your country to find these answers and develop the appropriate plan.
Owning Assets Outside the United States
If you’re an American citizen with assets in other countries, Uncle Sam wants to include those assets in your taxable estate. You should meet with an attorney in the foreign nations where you own assets to understand those nations' laws regarding your assets. For example, if you own a vacation home in another country, you may need a will drafted in that country to transfer the home at your death.
Being a Foreign Citizen
An unlimited marital deduction is available when a non-citizen leaves U.S. property to an American citizen surviving spouse, allowing an unlimited amount to be transferred in this way without estate tax. However, this does not apply when the roles are reversed. When an American citizen transfers assets to a non-citizen spouse, the same unlimited marital deduction is only available if the assets are transferred into a qualified domestic trust (QDOT) for the non-citizen spouse. This issue should be discussed in detail with an attorney.
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