Jeffrey P. Coleman Experience Matters · starters, wealth representing a lifetime of your hard work and thrift can be squandered in very short order. Dollars earned just spend differently

BLENDED

FAMILY BASICS

f you are a blended familyImember, then you are in good company.

Blended families now outnumbertraditional nuclear families. And thenumber is likely to grow, based on

current divorce statistics and trends.

ERISA retirement plans, for starters. While youare at it, create a Long-Term Discretionary Trust(LTD Trust) to administer the inheritance for yourchildren and appoint a party of your own selectionto serve as trustee. That way, even if your childrenreside with your ex-spouse, your trustee willcontrol the inheritance through the LTD Trustand ensure its use only for your children. Shouldyour children predecease your ex-spouse, theinheritance would remain in trust for yourgrandchildren, your surviving children or for otherbeneficiaries of your own selection.

Your LTD Trust does double duty by securingmany additional tax and non-tax benefits. Forexample, protect the inheritance for and from yourchildren (and their potential squandering,divorces, lawsuits and bankruptcies) throughSpendthrift Provisions contained in your LTDTrust.

Create a Qualified Terminable InterestProperty Trust (QTIP Trust) to provide incomeand perhaps even principal to your new spousefor life, while protecting the inheritance for yournew spouse in the event of any subsequentremarriage and divorce. Thereafter, the QTIP Trustassets may pass to the LTD Trust you establishedfor your own children.

Create an Estate Tax Exemption Trust to shelterthe maximum available exemption amount uponyour death. Often used in conjunction with theQTIP Trust for your new spouse, this trust canhelp you leave more wealth for your loved ones ...and less to the IRS.

Finally, seek appropriate legal counsel. It willbe time and money well spent.

This publication does not constitute legal, accountingor other professional advice. Although it is intended to beaccurate, neither the publisher nor any other party assumesliability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or writtento be used, and cannot be used by any person for thepurpose of avoiding tax penalties regarding anytransactions or matters addressed herein. You shouldalways seek advice from independent tax advisorsregarding the same. [See IRS Circular 230.]© Integrity Marketing Solutions.

Jeffrey P. ColemanColeman Law Firm581 South Duncan Ave.Clearwater, FL 33756

Tel: (727) 461-7474Fax: (727) 461-7476

www.ColemanLaw.com

Experience Matters

We are a full-service estate planning law officeworking to provide peace of mind to our clientsand their families. We are committed to personalservice to each client, using only those legal toolsand techniques that suit the individual client’sneeds, goals and personal situation.

Services provided include legal consultationand the preparation of:

• Revocable Living Trusts • Wills • Powers ofAttorney • Living Wills • Healthcare Power of

Attorney • Life Insurance Trusts • FamilyLimited Partnerships • Limited Liability

Companies • Corporations • Charitable Trusts •Medicaid Planning • and Other Estate Planning

and Tax Planning Strategies www.ColemanLaw.com

f you are a blended family member,then you are in good company.Blended families now outnumbertraditional nuclear families. And the

Inumber is likely to grow, based on current divorcestatistics and trends.

Divorce is rather common in America. In fact,an estimated 50 percent of first marriages end indivorce after an average of 11 years. The averagedivorce will cost the parties about $15,000 andtake approximately one year to process from initialfiling to final decree. Thereafter, the resultingeconomic fallout will tend to reduce the standardof living of both ex-spouses. Not surprisingly,divorce is not only expensive, but researchersconsistently rank it as one of the most stressfullife experiences.

Blended families face unique social,psychological and economic challenges. As aresult, an estimated 60 percent of second marriagesend in divorce. Fortunately, there are numerousorganizations and support groups dedicated tohelping blended families with these challenges.Unfortunately, however, little attention has beenpaid to the critical Life & Estate Planningchallenges of blended families. These challengesinclude disinheriting your ex-spouse, protectingyour own children, providing for your new spouseand minimizing your estate taxes.

Your Ex-SpouseWill your ex-spouse inherit your retirement

money, even if the laws of your state automaticallyextinguish their interest in the assets of yourestate? It depends. In Egelhoff v. Egelhoff, 121U.S. 1322 (2001), the United States Supreme Courtheld that federal law under the EmployeeRetirement Income Security Act of 1974 (ERISA)preempted state law regarding the retirement planof a recently divorced and deceased man.

Mr. Egelhoff had failed to replace his ex-spousewith his children as the named beneficiaries of hisretirement plan prior to his death. State lawautomatically disinherited ex-spouses. In a 7-2decision, the Court found that the retirement plan

administrator must follow the ERISA statutesrequiring distributions to the named beneficiary,even when the end result conflicts with state law.Bottom line: Mr. Egelhoff’s former spouseinherited the sizeable ERISA retirement planinstead of his own children.

Your Own Children

them were promises to be there through thick andthin, personally and financially. In the absence ofa Pre-Marital Agreement to maintain separateassets, most spouses in blended families tend toblend their wealth. For example, titling theirrespective assets in the names of both spousesand designating one another primary beneficiaryof their respective retirement plans and life

Assuming youhave removed yourex-spouse as thenamed beneficiary ofyour ERISA retire-ment plan, does therest of your Life &Estate Plan protectthe inheritance ofyour children fromyour ex-spouse?Without proper legalplanning, your ex-spouse (as survivingparent/guardian)would likely be appointed by the probate court tomanage the inheritance you leave to your children.To make matters worse, what if your children laterpredecease your ex-spouse, and are single andchildless at that time? Who would inherit yourassets then? That is right ... your ex-spouse, asthe next-of-kin of your children.

Regardless whether children are reared in atraditional nuclear family or in a blended family,great care should be given to protect anyinheritance both for them and from them. Forstarters, wealth representing a lifetime of yourhard work and thrift can be squandered in veryshort order. Dollars earned just spend differentlythan dollars inherited. In addition to good, old-fashioned squandering, an inheritance can quicklyvanish through divorces, lawsuits andbankruptcies.

Your New SpouseChances are you made a few solemn promises

to your new spouse on your wedding day. Among

insurance policies.Warning: Should you

predecease your new spouse,then you may foreverdisinherit your own childrenfrom your share of suchblended wealth! Thereafter,upon the death of your newspouse, your assets likely maybe inherited by yourstepchildren, or even by yournew spouse’s next spouse andtheir children.

Your Estate TaxesAside from disinheriting your own children,

blending your wealth with your new spouse mayunnecessarily enrich the IRS. How? The InternalRevenue Code provides an exemption to eachtaxpayer for purposes of sheltering a certain dollarvalue from estate taxes (with marginal ratesexceeding 40 percent). However, this is a use it orlose it exemption and you lose it when title toyour blended assets vests in your new spouseupon your death. In addition to disinheriting yourown children, this mistake alone can triggerhundreds of thousands of dollars in unnecessaryestate taxes.

Alternative SolutionsWhile there is no one-size-fits-all solution, there

are a few alternative solutions you might want toconsider.

Be sure to disinherit your ex-spouse byreplacing them as the named beneficiary of your

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U nfortunately little attention hasbeen paid to the criticalLife & Estate Planningchallenges of blendedfamilies.