Although Matthew and Jennifer Bishop had carefully put together wills after the birth of their son, that was nearly six years ago and their lives had become much more complicated.
Matthew’s business, which operated in a niche market, now had offices across the state of Georgia.
“As the business became more profitable, we had more money and our financial lives became more complex,” explained Jennifer. “Yet we kept putting off updating our plans.”
Their son John had grown just as fast as their business and was now entering kindergarten. For Jennifer, that was the turning point.
“After a couple of years of being a parent it hits you that something could happen to you and you begin to think about what would happen to your children,” continued Jennifer. “That’s when we decided we needed to do something, and this time we wanted to do it right.”
Jennifer and Matthew knew that they needed to seek assistance from a seasoned estate planner to create the type of protection they were looking for.
“Matthew and I have accomplished a lot together,” said Jennifer. “And as John’s mother I want him to get the benefit of that work, but I know that Matthew’s boys from his first marriage should get the benefit of Matthew’s work, too.”
Beyond the requirements of the business, Matthew & Jennifer’s situation was further complicated by their strained relationship with Matthew’s ex-wife and his sense of responsibility for his two sons from his prior marriage. With one in high school and one in college, Matthew’s older sons were certainly at a different point in their lives than John, but Matthew wanted to make sure that their education was taken care of and that they were also eligible to benefit from his success.
Jennifer was introduced to Richard Morgan after he did work for her best friend.
“Initially we didn’t know what we needed,” said Matthew. “But we knew it would be complicated.”
“We wanted it to be fair for the three boys but we knew that the three boys were not similarly situated,” continued Jennifer. “We had several meetings with Richard where we just talked so he could understand what we wanted. Richard was helpful in coming up with ideas so we could find the one that we would all be comfortable with.”
Blended families present unique estate planning scenarios when both partners bring assets and dependents to the marriage and then create assets together.
For Matthew, his master plan begins with two specific gifts from his estate: equal distribution of his antique coin collection to his three sons and higher education trusts for the sons from his prior marriage. The higher education trusts include a clause that requires the boys to maintain a C average in order to collect.
“Because of their fear that Matthew’s ex-wife might try to create havoc with the distribution of his estate, the trustee of the education trusts also has the authority to simply cut off the kids,” explained Richard. “Finally, any monies not spent by the time the boys reach age 30 are distributed to them outright.”
All of Matthew’s remaining assets go to Jennifer as the trustee and beneficiary of the other trusts under Matthew’s plan. At Jennifer’s death, 2/3 of the remaining assets go to their son, John, and 1/3 to Matthew’s children from his prior marriage.
For Jennifer, her master plan provides that if she dies before Matthew then 100% of her assets pass to Matthew as trustee and beneficiary of one or more trusts, with all remaining assets at Matthew’s later death passing for the benefit of their son, John. The only time Jennifer’s assets would benefit Matthew’s children from his prior marriage would be if none of her descendents are surviving.
Another trust was setup in Matthew’s plan that owns life insurance on his life to indirectly provide liquidity (cash) to cover any additional needs that Jennifer and John might have, as well as to eventually cover taxes and the needs of their business. By having the life insurance on Matthew’s life owned by a properly structured and administered trust, the eventual insurance proceeds will avoid being subject to estate taxes even though the proceeds will be available to provide for the family’s needs consistent with the overall plan.
“There will likely still be some taxes owed at the second death of Matthew and Jennifer, but the insurance proceeds will provide a ready fund to pay them,” explained Richard.
“Fortunately there is enough insurance so that I won’t have to return to work right away and can survive with John,” summarized Jennifer.
Consistent throughout both of Matthew’s and Jennifer’s plans is the protection of the assets which will eventually pass to John from any future potential problems he may encounter with creditors, spouses in divorce situations and taxes upon his death.
“While it may seem silly to plan now to protect assets from potential problems which may not even be a consideration for many years, the reality is that regardless of your being there to see it or not, a child will likely grow up, get married and have children of their own,” interjected Richard.
Planning to protect your assets from a child’s future potential problems makes the property you eventually pass on more valuable to your family.
In routine situations it is important to own your assets correctly and provide for the proper beneficiary designations to ensure that your estate plan works as intended. However, it was even more important for Matthew and Jennifer since their plans do not parallel each other. For example, Matthew’s plan provides significant benefits for his children by this prior marriage, but Jennifer’s plan provides them with no benefits.
“This is intimidating and confusing. Not just because it is about money but because it is personal and about death,” said Jennifer. “Knowing that this is taken care of, I am much better able to sleep at night.”
On Referring Friends
“Unfortunately, most of the people I come into contact with at this point in my life are more worried about who is going to be the guardian of their child or children than what will eventually happen to their assets,” said Jennifer. “Now that we have had the opportunity to work first hand with Richard and update our very outdated plan, I’m starting to talk more openly to friends about the consequences of not having the right will done the right way.”
“Most clients come in and say they want something simple but in many cases they need something more complicated,” concluded Richard. “Our job is to understand a client’s particular situation and goals and then to educate them on the available options to accomplish their goals. Clients will often choose the more complex options since they can provide so much more benefit to their family.”
Advanced planning can save your family a lot of pain, as well as a lot of money, and ensure that your heirs and your assets are handled the way that you want them to be. Every individual situation is unique and that is why it is essential for families to voice all of their concerns during the planning process so the appropriate instruments can be selected and structured to provide the best protection for everyone involved. When you are ready to start re-evaluating your estate plan, the lawyers at Morgan & DiSalvo are ready to help.