Do you remember the old movie--"Yours, Mine and Ours?" Now, fast-forward that same idea about 30 years down the road. They were in an unusual situation for that time period but today it is commonplace to have a blended family. In order to keep everything straight, there are a few items you can put in place to keep the peace.
A QTIP Trust Can Keep Everyone Happy
If you’re getting married for the second (or later) time, before the big day it’s wise to review your estate plan — especially if you have children.
Why? Because financial conflicts between your future spouse and children from previous marriages may arise. To head these problems off at the pass and maintain family harmony, consider a Qualified Terminable Interest Property (QTIP) trust.
QTIP as a Family Peacekeeper
A QTIP trust gives you the peace of mind that assets you leave to your spouse won’t eventually be distributed in a way that’s against your wishes. In other words, it provides lifetime security for your surviving spouse while protecting your children from a previous marriage from disinheritance by your spouse.
How does this work? You designate your new spouse as the current trust beneficiary and your children from your previous marriage as the remainder beneficiaries. Your spouse receives all income from the trust, and you can allow your spouse as much or as little access to the principal as you choose — though giving him or her too much access to the principal would defeat the trust’s purpose.
Bear in mind that, even with a QTIP trust, squabbles can erupt between spouses and children about investment decisions that affect how much income the trust will generate for distribution. Some states have total return trust legislation, which allows the surviving spouse to annually receive a fixed percentage of the trust assets in lieu of income.
A Balancing Act
When creating a QTIP trust, you must choose a trustee and successor trustee. Your trustees must balance the needs of both your surviving spouse and the children. Often, a corporate trustee is the best choice because he or she provides neutrality. QTIP trust beneficiaries often have the option of removing a trustee.
To ensure that a trustee who favors one beneficiary over another isn’t put in place, require both the surviving spouse and the children to agree on any successor trustees. In some circumstances it may be appropriate to form a contingency plan.
For example, let’s say your new spouse is considerably younger than you. Under a QTIP trust, your children won’t receive their inheritance until your spouse dies, which may be many years after your death. Thus, consider making an immediate distribution of part of your estate to the children in a separate trust, and place only a fraction of the total estate in trust for the surviving spouse.
A Clean Start for your Family
A second or third marriage can be both a joyous and contentious time for you and your family. To smooth over conflicts, consider setting up a QTIP trust to help meet everyone’s needs.
All the best,