Your estate plan is going to need of relatively frequent revisions over the years if you are a responsible individual who wants to be prepared at all times. There are various things that take place throughout society as a whole that can call for a visit with one of our trust lawyers to make adjustments, and personal matters can have an impact as well.
One of the things that commonly takes place in the lives of individuals is a change in marital status. As we all know, a significant percentage of first marriages end in divorce, and most people who get divorced eventually remarry. If you decide that you would like to get remarried after having been divorced, you may want to consider entering into a prenuptial agreement.
Of course, everyone who remarries feels as though they have found the right person, or they would not be getting married. However, some 60 percent of second marriages do not endure, and over 70 percent of third marriages end in divorce. As you can see from the statistics, it is more likely than not that your second or third marriage will not last. Is it prudent to go forward without a prenuptial agreement given these figures?
There is also the matter of making sure that your children from previous marriages are provided for regardless of what takes place in the future. You can provide for your new spouse while ensuring the future well-being of your children if you plan ahead in an intelligent and informed manner. This is often done through the creation of a qualified terminable interest property trust (QTIP).
When you establish this type of trust with the help on one of our trust lawyers, your spouse would be the first beneficiary, and you name your children as the secondary beneficiaries. You fund the trust with property that you eventually want to pass along to your children, but your spouse could potentially utilize the property while he or she is still living. For example, if you convey your home into the trust, your spouse could still live in it.
If there are income producing assets in the trust, you could empower the trustee to distribute this income to your spouse throughout the rest of their life. Your surviving spouse would be well taken care of, but the terms of the trust would be set in stone with regard to the eventual transfer of the assets to your children. After the passing of your spouse, your secondary beneficiaries would assume ownership of assets that remain in the qualified terminable interest property trust.
Estate Tax Exposure
If you experience extraordinary financial success over the years, you may eventually be faced with estate tax exposure. If you originally worked with our trust lawyers to create your estate plan when your assets did not exceed the amount of the estate tax exclusion, you would definitely need to discuss death tax efficiency strategies with us.
For the rest of 2018, the estate tax exclusion stands at $11.18 million, and the maximum rate of the tax is 40 percent. This means that the first $11.18 million can pass to your heirs free of taxation, and anything that exceeds this is subject to the death tax and this rather high 40 percent rate.
There are a number of different strategies that can be implemented to ease the burden. With a QTIP trust, the estate tax would not be applied until your children inherit the assets. Another possibility is the creation of a qualified personal residence trust. The way that it works is you convey your home into the trust, and when you do this, it is no longer part of your estate. However, there is a gift tax that is unified with the estate tax, so when the beneficiary assumes ownership of the home after the expiration of the term, the gift tax would be applicable.
On the surface, it may seem as though there is no benefit from a tax perspective, but there is a catch. You can continue to live in the home as usual after you convey it into the qualified personal residence trust. This interim is called the retained income period.
Let’s say that you remain in the home for 10 years. No one would purchase a home at full market value if they could not occupy it for a decade. The Internal Revenue Service takes this into account when the tax responsibilities are being calculated. At the end of the day, the taxable value of the gift will be far less than the actual value of the home.
Attend a Free Seminar!
You can obtain a great deal of very useful knowledge if you attend one of our seminars. They are free, and you can visit our seminar schedule page to get all the details.