Money can bring out the best and worst in people. Unfortunately, it is not uncommon to see the worst when a family’s estate plan doesn’t reflect their wishes. As is often the case, the more money at stake, the more problems. Wealthy elderly individuals can be targets for gold diggers, grifters or sociopaths who have an ulterior agenda.
A common situation is when a married couple leaves their assets to each other, so when the first spouse dies, assets pass to the surviving spouse. The problems arise when the surviving spouse has the rights to do with the money as he or she pleases. While most estate plans probably dictate who the eventual contingent beneficiaries of an estate will be, a surviving spouse who is of sound mind can execute a new Will at any time. It is very difficult to go backward to retroactively put an estate plan in place, especially if the surviving spouse remarries a spendthrift. As an heir, you cannot prevent your parents or grandparents from making poor financial decisions or financial decisions you may simply disagree with.
If an elder in your family has begun to act irrationally and exhibits erratic behavior, it may be possible to have your elder declared incompetent. If there is a springing power of attorney document in place, the family can then act on the elder’s behalf once declared incompetent. However, the agent can only use and manage the elder’s assets in the elder’s best interest. New wills or trusts cannot be created. Likewise, if the senior is acting as trustee for any trusts, the secondary trustee will need to step in.
If keeping family wealth in the family is of utmost importance, estate planning in advance is key. We advise families to have their estate plan reviewed every couple of years to ensure it accurately reflects what your wishes are and accommodates any changes in the law. For families who anticipate a surviving spouse will remarry who want to prevent the new spouse from receiving rights to family property or families with children from a previous marriage and want to ensure they will receive their inheritance, a qualified terminable interest property trust (QTIP) may be an appropriate tool to keep assets in the family bloodline.
In general, the surviving spouse would receive all income generated by the QTIP, but would not have access to the principal during his or her lifetime, except for certain powers that are allowed. Furthermore, the first spouse to die can specify who the eventual heirs will be, while giving limited testamentary power of appointment to change the beneficiaries. For example, you could limit your spouse’s rights to change the beneficiaries to your children or grandchildren.
The advantages of a QTIP trust include the flexibility in tax planning and protecting assets from future creditors, lawsuits and new and ex-spouses. A QTIP trust defers the taxation of the estate until the death of the surviving spouse, transferring the tax liability to the named beneficiaries. However, a QTIP limits your surviving spouse’s access to principal in the trust, and your heirs must wait until your surviving spouse passes away before receiving any assets from the trust.
Not all families need a QTIP trust; however, in certain circumstances they can be a useful tool in retaining family wealth. If you have questions on protecting your family assets, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
