Estate Planning for Blended Families

When a person remarries, either after a divorce or death of the former spouse, and children from the first marriage are involved, a whole host of estate planning problems crop up. Remarriage may not be the joyful event to the children that the marrying parent wants it to be. Questions naturally arise over who gets what. Here are some tips for making a second marriage smoother when it comes to estate planning.

First, discuss matters with your new spouse. He/she may also have children of a former marriage, which complicates the issue. Discuss your plans and hopes for your children and your new spouse's children.

Secondly, in your discussion, set some goals. Are your children minors who still need some form of support? If so, providing that support should be a major goal. If they are grown and have families of their own, what about grandchildren? Decide what you want to accomplish.

Third, consider a trust. In my view, anyone with an estate to pass to heirs should have a trust. It will allow flexibility in distributing your assets. When it comes to real estate, if the couple is older and one of the goals is to provide a place for the surviving spouse to live, consider a life estate to that spouse with the remainder passing to the trust.

Fourth, talk to your family. Don't surprise them after your death when the will is read.

Fifth, talk to a professional. Planning for blended families is one of the most complex tasks in estate planning. Don't try to do it yourself.

Credit Card and Medical Bankruptcy

I just read an online article that talks about filing a "credit card bankruptcy." Over the years I've had people ask about "medical bankruptcies" as well. There seems to be some almost universal misunderstanding that leads people to believe they can file bankruptcy against certain types of debt, such as credit cards or medical bills, but leave out other debt, like home loans, car loans, etc.

Bankruptcy is an all or nothing proposition. You either file against all debt, whether you want to or not, or you file against none. You don't get to pick and choose. It is possible to exempt certain debt from your discharge -- that's called "reaffirming" the debt. But the creditor has to be listed in the first place, which means the creditor will receive notice of the bankruptcy.

A 529 Education Savings Plan as Estate Planning Tool

A 529 education savings plan is a plan where you select the recipient ("beneficiary") and make contributions for that person's post-high school education. The beneficiary can be a child, grandchild, nephew, niece or just the neighbor's kid. You make the contributions in any amount you want. You can change the investment strategy or even the beneficiary. And those contributions can be used to reduce your overall estate for estate tax purposes.

The law currently allows a lump sum contribution of $65,000 per beneficiary, with an unlimited number of beneficiaries. That is money that won't be in your estate at the time of death, and therefore not subject to the estate tax. Remember that the current limit for estate tax is $3.5 million, but a lot of people expect the Obama Administration to push for a reduction back to the $1 million limit that existed nearly 20 years ago when Clinton was president.

There are some quirks about 529 contributions. For example, you cannot make other reportable gifts to the recipient during the five-year period after the gift, and, if you die during that five year period, a pro-rata share may come back to your estate. But it's a good way to reduce your estate.

If you're a grandparent and own the account (it is possible to set up the account in the beneficiary's name), the amount in the account is not counted when it comes to determining whether the recipient is eligible for student aid, such as grants and loans.