Charlotte Estate Planning Blog

How to estate plan after a second marriage

Being part of a blended family can make estate planning harder. Therefore, it is important that those in North Carolina and throughout the country who are getting married for a second time review their current plan. Updating beneficiary and insurance forms can help to protect children from a previous marriage. If assets are left solely to a new spouse, there is no guarantee that this person will share them with those children.

A trust may be an effective tool to ensure that both a spouse and children from a previous marriage are taken care of. The use of an AB trust can allow a surviving spouse to maintain a reasonable standard of living after the trust's creator passes on. Once the second spouse dies, the children get whatever is left in the trust. The trust can also help provide for biological sons and daughters if the surviving spouse remarries.

Why trusts may be better than wills

According to the American Association of Retired Persons (AARP), individuals in North Carolina and throughout the country should have a trust instead of a will. Trusts are separate entities that hold assets for the benefit of one or more individuals. Therefore, there is no need to go through probate when an individual dies, and there is no possibility of a will contest from a family member or other party.

The details of a trust are not made available to the public, which means that information about a family's assets is not disclosed. Putting items into a trust may eliminate the need to go through probate in multiple states. This could occur if an individual lived in one state but owned property in another. It may be best to leave money for minor children or grandchildren using this tool as opposed to leaving it to them directly.

Why trusts can help the estate planning process

Trusts can be an important part of the estate planning process for many people in North Carolina. Since they offer greater privacy and flexibility, people may opt to create a trust to handle matters in a way that may be far more challenging when using a will. Trusts are one part of a complete estate plan that can also provide additional discretion for their creators as well as their beneficiaries. Many people want to avoid probate court as it is a public process that can open assets up to scrutiny. In addition, probate costs can be expensive and the process lengthy, especially when significant assets are involved. Trusts distribute assets without going through this process.

In addition, a trust can also be structured to protect against future incapacity. When the trust is created, the creator can remain the trustee controlling the funds. The trust itself will own the assets placed inside. However, when the trustee becomes incapacitated, the trust can be structured to ensure a successor takes over to manage the property. Trusts can provide greater control over how assets are distributed to heirs, preventing the funds from being lost to irresponsibility or to a divorce settlement.

Getting started with succession planning

If business is going well, you probably do not want to think about stepping down from the helm. In fact, even if your company is going through a tough time, you may want to be the one to see it through to better days. Unfortunately, this cannot go on forever. At some point, you will have to let go of your role in the family business and turn operations over to someone else.

Undoubtedly, this thought has been in the back of your mind. Perhaps from the very beginning, you had a dream of passing along the business to your children or a cherished employee. It may be decades before you are ready to take this step, but it is never too early to start planning for the important succession of your business.

Spendthrift trusts provide peace of mind

When North Carolina residents draft their estate plans, they are sometimes worried that their heirs will be unprepared for a significant inheritance and fritter away assets that they have worked hard all of their lives to accumulate. These concerns may be especially pronounced when heirs are financially inexperienced, have acted irresponsibly in the past or are struggling to overcome substance abuse problems. Placing assets in a spendthrift trust is an effective way to address this issue and protect both estates and heirs.

The language used when drafting the trust documents names trustees and outlines how much control they will have over how and when assets are distributed. Distributions can be scheduled to take place at specific times or left to the discretion of the trustees. Testators commonly include provisions that withhold distributions until heirs reach a certain age or achieve milestones such as graduating from college or maintaining sobriety for a designated period of time.

Tom Petty's heirs in conflict over estate plan

North Carolina fans of the late musician Tom Petty may be aware that his family has been locked in a battle over his estate. At issue is the ambiguity of the language used in his estate planning documents.

Petty created a trust and made his wife the trustee. However, the documents also state that all artistic properties must then be transferred from the trust to a limited liability company. His wife and his two daughters from a previous relationship are supposed to be able to "participate equally" in managing the LLC. Petty's daughters say this means that each of them has equal voting rights. Petty's wife wanted to have a professional manage the limited liability company. Furthermore, she says that the person she chose as manager was approved by one of the daughters until the professional disagreed with the daughter's choice about how to manage Petty's assets.

Estate planning concerns for single parents

Parental expectations about their children often determine the structure of North Carolina estate plans. For single parents, the stakes tied to estate planning may be even greater. In cases where a single parent dies leaving a minor child, the child might be forced to leave the area in order to live with the other parent or a different relative. The state of the relationship with the other parent is often a major factor in making planning decisions.

It is common for the custodial parent to believe the child's other parent is the best option to take over custody in case of death or incapacity. For some parents though, this option is untenable. If the custodial parent does not want the other parent to step in, he or she will need a network ready to act in the child's best interests.

Family drama often complicates estate planning

Certain family dynamics can make the estate planning process even more difficult for North Carolina residents. Fighting siblings, spendthrift children and other hostile relatives can raise issues that should be addressed during the actual planning process. Candid conversations during life and a letter of wishes left for reading after death can ease the difficulties. However, many issues can be addressed directly via estate planning instruments.

When it comes to giving money or other assets to siblings who are fighting, parents may be wise to explain their goals, perceptions and reasons for distributing assets in a particular way. The tension between siblings could increase if the parent names just one child to act as a trustee for assets owned by the others. Naming an impartial trustee, like a bank or law firm, can avoid such complications.

Use your estate plan to lessen the chances of family conflict

If you feel like you are struggling when it comes to estate planning, you are not alone. Many North Carolina residents wonder what details will help them best express their end-of-life wishes and it can be difficult to even know what those wishes are.

For you, the planning process may be even more difficult because you have concerns that your family will fight over your remaining estate or that your heirs will be irresponsible with their inheritances. Fortunately, you have the opportunity to address those concerns and possibly lessen the likelihood of conflict while creating your plan.

Old strategy helped by tax law changes

Changes in tax law have brought an old strategy back for taxpayers in North Carolina and across the country. It allows taxpayers to save taxes on appreciated assets. The renewed interest in the strategy comes from an increase in the number of tax exemptions that went up to $11.4 million.

The practical steps of the tax strategy, which is sometimes referred to as upstream planning, involve the taxpayer making a gift of an appreciated asset to an older relative with the understanding that the relative will bequeath the asset back in his or her will. The cost-basis in the asset is stepped-up at the time of the gift, so the taxes on any gain to that point may be avoided.

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