Estate planning for blended families presents particular concerns. Questions about estate taxes, picking the right fiduciary, and how to best provide for loved ones are issues that all people face when preparing their estate plans. But the answers become more complicated as spouses, ex-spouses, children, and step-children become part of the picture.
Here are some common estate planning questions we get from clients trying to plan for their own blended families:
1. We both have children from prior relationships, and we have children together. How do we provide for each other, while also balancing the interests of children and stepchildren?
Balancing the interests of your current spouse, the children you have together, and your children from previous relationships can be tricky. Many spouses expect to maintain their current standard of living, even after their partner dies. Many children expect to receive an inheritance when a parent dies, even if that parent has remarried. Frustrating these expectations can create serious family tension.
A good first step is to determine who among your spouse, children, and stepchildren should inherit from your estate. The answer is not merely a financial decision, but an emotional one as well. You and your spouse may disagree about who should receive a share of your assets at your death. The emotional decision-making involved with estate planning is often the biggest barrier for blended families. It is
important to remember that any decision is better than no decision, as the consequences of dying without an estate plan in place are often burdensome, costly, and emotionally draining for the surviving
family members.
Once you determine who will have a share in your estate, the next step is to determine how big a share each person will have. Preparing a list of your assets, including the values of each, can be a good place
to start. For some blended families, it makes sense to divide assets into varying percentages (such as half to the surviving spouse, one-fourth to children, and one-fourth to stepchildren). Other times it may
make more sense to evaluate assets individually and then determine who gets what. For example, you may have family heirlooms or a family business that you wish to pass to your children.
An estate planning attorney can help blended families with both of these steps and find solutions that accomplish personal goals and address the needs of the family.
2. I want to provide for my spouse, but, ultimately, want to make sure that my children from my previous relationship are taken care of. How can I do that?
When contemplating the division of assets at death, many people want to make sure that their spouses are provided for and are able to continue enjoying certain assets, such as the family home. This is especially true if one spouse relies on the other for support and does not have significant separate assets of their own.
An outright gift of assets is certainly the simplest way to provide for a surviving spouse. However, this option is usually not the best choice for blended families. Giving assets to a surviving spouse outright means that he or she has total control over how to dispose of such assets when they die. Consider the following scenario:
Jack and Diane own their house as joint tenants with right of survivorship. At Jack’s death, Diane becomes the sole owner of the entire house and she lives there until her death. This is consistent with Jack’s wishes. At Diane’s death, the house is sold and 100% of the proceeds are divided among Diane’s children. The children from Jack’s prior relationship receive none of the proceeds from the sale. This is not consistent with Jack’s wishes, but his children have no legal recourse, as the house was entirely in Diane’s name at the time of her death.
Jack and Diane could have titled the house as tenants in common. In that case Jack’s 50% of the house would not automatically pass to Diane at his death. Jack could then have prepared a will providing for
his 50% of the house to pass to a trust for Diane’s benefit. Diane could continue to reside in the house during her lifetime, but at her death, Jack’s 50% could pass to his children.
No matter the assets involved, many blended families find that setting up a trust for the benefit of a surviving spouse during their lifetime is a useful technique to provide for them while ensuring that assets ultimately pass to each spouse’s children.
3. We signed a premarital agreement. Is that enough? How does that affect our estate plan?
A premarital agreement states how your assets will be divided at the end of the marriage, whether by death or divorce. When the agreement addresses death, it will generally specify the share your spouse has a right to receive upon your death. Each state has rules regarding how much a surviving spouse is entitled to receive from a deceased spouse’s estate. A premarital agreement may alter these rules so as to allow the parties to leave a larger portion of their estate to their own children. A premarital agreement can also allow parties to leave assets in trust so as to control their disposition after the surviving spouse dies.
Spouses with a premarital agreement still need estate planning documents, such as a will or a revocable living trust, to provide how and to whom their assets are to be distributed. If you have a premarital agreement, it will be important to make sure that your estate plan complies with its terms.
The thoughtful preparation of estate planning documents can save money, time and heartache for blended families and their heirs.
