Say you have a second spouse, and you want to ensure that he or she receives a significant amount of your estate after you die. Seems simple enough, right? Just include in your will the amount you want your spouse to inherit.
But what if New Jersey residents also want their kids from a previous marriage to have an inheritance? This complicates matters, especially in cases in which the second spouse and the children don’t see eye to eye. And what if the amounts of the two separate inheritances — the spouse’s and the kids’ — aren’t exempt from the estate tax?
That could leave your heirs with a hefty tax burden unless you find some creative solutions to protect those assets.
Let’s look at some possible fixes for these estate-planning problems.
Someone who wants to lessen the estate-tax liability for a spouse can directly give that spouse a gift. Spouses can give each other gifts of any size without paying a penny in taxes. So if you’re inclined to do so, you can give your spouse a gift, and the spouse could even make that gift available to the children in the form of a trust.
The next step could be to have the trust name the children and the gift-giver (you) as beneficiaries. After you die, your children would then become the trust beneficiaries. Your spouse could even include a provision in the trust that allows you — a beneficiary — to take withdrawals from it.
In addition, setting up a grantor trust separates the trust-money from the estate, so that means those assets won’t be subject to the estate tax.
To learn more about other estate planning tools for reducing tax liability, please stop by our New Jersey estate planning site. Our firm handles situations similar to the one described here.
Source: The Wall Street Journal, “Alleviating Stepchildren’s Tax Burden for Second Wife,” Harper Willis, Dec. 7, 2012