Blended families face unique challenges that often involve designating particular assets to go to a surviving spouse, and other assets to children. The trap for the unwary is that estate expenses are usually paid from the residuary beneficiaries. What that meant for Tom Clancy’s children is that their step-mother got the bulk of the estate, but they got the estate tax bill.
As reported in the WSJ and wealthmanagement.com, last Friday (Aug 21, 2015) Baltimore Judge Lewyn Scott Garrett ruled that Mr. Clancy’s widow didn’t owe any estate taxes on the $86 million estate. This means that the tax bill for her share (roughly $57.5 million) will be paid by the other beneficiaries – Mr. Clancy’s other children. While it appears that this was Mr. Clancy’s intent, this result may come as a surprise to others in similar situations.
Most of us won’t have to deal with large estate tax bills, but there are plenty of other expenses relating to an estate – the final tax return, expenses with the upkeep of the estate, etc. When creating a plan that splits the estate it is important to consider not only who gets what, but also who will pay the estate’s expenses.
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