While many people in second marriages with children from previous relationships may think that their family is perfectly blended like “The Brady Bunch,” their heirs may see things differently after the passing of their parents. When stepparents and blended families are involved, fights over an estate are more common. Estate planning for blended families – families with a second marriage or children from previous relationships – is complicated, yet essential, in order to ensure that your wishes are honored and to avoid any family feuds.
Many people entering into a second marriage may already have an estate plan in place, but they fail to update it after the marriage, resulting in unintended consequences at their death. For couples with no estate plan in place, the spouse will generally inherit all or most of the assets at the first spouse’s death, potentially leaving the children of the deceased spouse out of the equation.
Even in the best-case scenario where the couple does update their estate plan after their marriage, careful considerations should be made about how to structure the estate plan. A typical estate plan for a married couple usually will provide that, upon the death of the first spouse, all assets pass to the surviving spouse. In a blended family, depending on the family dynamics, this type of plan could result in the deceased spouse’s children from previous relationships being essentially disinherited as the surviving spouse has no legal obligation to name the stepchildren as beneficiaries of his or her estate. If the surviving spouse remarries, then yet another interested party could make claim to the assets you intended to eventually pass to your children.
The key to preventing a family feud in blended families is complex estate planning. A good estate planning attorney can help you devise a plan to ensure that your assets pass according to your wishes. In addition to establishing a marital trust for the spouse that protects the remaining assets for the children, below are some other examples of creative ways that you can plan:
Life Insurance – You can leave your assets to your surviving spouse in trust but designate your kids as beneficiaries of any life insurance policies.
Specific Assets – If you own land, for example, you could structure your estate plan to allow the surviving spouse to receive income from the land during his/her lifetime, but then the land will pass to your children upon the death of the surviving spouse. If the asset is something like a vacation home or an art collection, stipulating that beneficiaries share that asset might heighten tensions and ill will. Additionally, if you want specific items of personal property to pass to a certain person, then you should specify those items on a signed written list to avoid future disputes.
“Gift off the Top” – You can specify that your children receive a certain amount “off the top” before the remainder passes to a trust for the surviving spouse or you can add “pay on death” designations to certain accounts outside of your trust. Both options allow your children to receive a sum certain upon your death.
Retirement Funds – By federal law, the surviving spouse will automatically inherit 401(k) accounts unless the spouse waives his or her right to these funds. If you want your kids to receive some of these funds rather than your spouse, he or she will have to sign off on the beneficiary designation.
Prenup – Marriage automatically gives surviving spouses property rights and legal protections. In addition to the federal law regarding retirement funds, most states have laws that allow a surviving spouse to claim an elective share – typically 1/2 or 1/3 of the estate- unless waived. This waiver can be documented in a prenuptial agreement which can also cover the spouse’s waiver of his or her share of retirement funds.
Separate trust for inheritance – Oftentimes, one spouse may have inherited assets from their deceased parent and they want those assets to pass through their bloodline only. To avoid these funds being “co-mingled” with the other spouse’s funds and thereby subject to claims by that spouse’s children, the spouse receiving the inheritance could establish a separate trust with the inheritance that names his or her biological children as beneficiaries.
One final point regarding estate planning for blended families is that the choice of a trustee for any trusts that you establish is even more important than in the case of a non-blended family. The potential for conflict when naming your spouse or one or more adult children to fill the trustee role is enormous. Oftentimes, your adult children would not want their stepmom or stepdad overseeing their funds. A professional fiduciary may be the best option to preserve family harmony.
The key to developing a complex estate plan for your blended family is a good estate planning attorney who can assist you with formulating the best plan for your family situation. But the most important point is that you have some sort of plan and that you should communicate the plan to your heirs so they know what to expect. Families with open communication often have the smoothest wealth transfers. The attorneys at Great Plains Trust are not able to draft your estate planning documents, but they are able to review your current estate plan and make recommendations.
