Second marriages can be wonderful things — exciting, fulfilling, and rarely dull! At the same time, second marriages present special challenges in estate planning. You and your spouse may have children from previous relationships, as well as children together. You each may have property and other assets you’ve brought to the relationship. If you’re like most people, you want to provide for your spouse’s needs, while ensuring that your property (or much of it) ultimately will go to your children.
Today, many families face new challenges in estate planning due to the changing family dynamics from divorce, remarriage, domestic partnerships, etc. Everyone needs a written estate plan, but married couples with blended families especially need to get things down on paper. If there is no written estate plan, state laws will determine where everything goes when the first spouse dies, and the results might not be ideal.
What is a Blended Family?
Generally, in the estate planning world, the term “blended family” is used to describe a family where there is one or more step-children.
Blended families take several forms:
- Married couples in which one or both spouses have children from a previous marriage.
- Families with children who are in second or subsequent marriages and who have children from previous marriages.
- Families with children whose spouses have children from previous marriages.
Blended families can face complex estate-planning challenges. Issues can arise between spouses or between children and their spouses. Typically, individuals in blended families want to provide for the spouse as well as the children from the previous marriage. In some cases, they also want to provide for the children from their spouse’s previous marriage.
Where to Begin With Estate Planning For Blended Families
Why it Matters
In some jurisdictions, two-thirds of a decedent’s estate will go to children from a prior marriage or relationship if there is no written estate plan. At the same time, a surviving spouse generally has the right to claim a share of a decedent’s estate, typically one-third or one-half, if the decedent’s written estate plan does not provide adequate support. Prenuptial agreements generally spell things out, but not all couples have this agreement in place. And unless there is a written estate plan, a prenuptial agreement may have no impact on what happens at death.
For blended families, one of the first things to decide is who to provide for, and to what degree. Does it make sense for everything to remain with the survivor at the first death, or should all or a portion go to children from previous relationships? And what about children from the current marriage, or the surviving spouse’s children? Are there child support obligations that have to be met? The answers to these questions will determine how the estate should be structured.
Identify People to Be Named
Every estate plan should begin with a list of individuals you want to be named in your documents, including:
- The person(s) to serve as agents during your incapacity or upon your death.
- The person(s) whom you wish to receive your assets and possessions.
If any assets are to be held in Trust, we recommend careful consideration of post-death family interactions. In particular, consider how Trust beneficiaries will respond to the Trustee selection(s) you make, and how all parties may interact together, especially during the emotional period of bereavement, and later, as beneficiaries age.
Beneficiary Designation Changes
Naming a spouse (or anyone else) as the beneficiary of insurance policies, retirement accounts or transfer/pay on death accounts puts that person in total control of the assets when the initial account owner dies. The survivor is then free to leave those assets to their own children or perhaps to a new spouse if the survivor remarries.
Every family is different, and even basic estate planning can seem unnecessarily complicated. Estate planning for blended families can be even more challenging. They, along with their team of wealth strategists, can help you make well-informed decisions that are effective for you and your heirs.
Outline Bequest Amounts
Deciding the intended amounts you want each party to receive can be complicated if you do not intend to split your assets evenly. Amounts should take into account financial needs, particularly for surviving spouses, young children, and other dependents. Also, remember any required asset flows based upon prenuptial, post-nuptial, or divorce agreements.
Common Blended Family Estate Planning Topics
Once you have an overview, it is typically best to engage in a collaborative discussion with your financial advisor and estate planning attorney. These professionals can help guide your decisions, but it helps to be aware of common topics that might arise during discussions, such as:
A Marital Trust, or as it is sometimes called, the “A Trust,” is an Irrevocable Trust designed to hold the deceased spouse’s assets that exceed the amount that can be sheltered from death taxes. The Marital Trust assets are not taxed at the first spouse’s death, but they are part of the second spouse’s estate. If the second spouse is not wealthy, this allows the use of both spouses’ exemptions without actually giving the less wealthy spouse ownership.
The second most common structure is an outright ownership transfer to the surviving spouse. This is the least complicated approach as no Trusts are involved. However, the ultimate disposition of your assets becomes subject to your spouse’s estate planning decisions. You need to consider the trade off between simplicity versus forfeiting the ability to dictate your final wishes, to include possibly protecting your children’s interests.
A family trust is just a type of trust that has family members as your beneficiaries. So a family trust is a subset of trusts and not its own distinct type of trust. Just as with regular trusts, there are two main types: revocable and irrevocable trusts.
Power of Attorney for Financial Affairs
A durable power of attorney gives you the opportunity to name a trusted individual to manage your financial affairs and legal decisions during your life if you are not able. Make sure that any previous powers of attorney (perhaps naming your previous spouse) are revoked. Execute an updated power of attorney naming your spouse, your children or another trusted individual as your agent.
Advance Healthcare Directive
Similar to a power of attorney, a health care directive allows you to name someone you trust to make decisions about your health care when you are not capable yourself. An updated health care directive is always helpful for medical professionals in the event of an emergency. This also gives you a chance to discuss your feelings about your end-of-life care, organ donation and burial arrangements with your new spouse.
Your personal belongings might be the least valuable assets in your estate, but they often embody significant sentimental value. If your belongings are intermingled with your spouse’s, and you have children or step-children, it’s important to dictate specific bequests, either as part of your estate planning documents or in a supplemental memorandum.
One Spouse Comes Into the Marriage with More Assets
It is not unusual for spouses to come into a second marriage with an unequal amount of assets. Often times, the spouse with more assets wants to ensure that his or her assets will be distributed to his or her children after both spouses pass away. The blended family estate plan takes these additional assets into consideration.
Estate Planning Attorney for Blended Families
Both spouses bring children, property, and assets into the marriage and may have different ideas and goals about passing their assets to their children or to each other. The next step for newly blended families is for the couple to have a frank and open conversation about their goals. It is far easier to discuss these emotional issues with a neutral third party. They can help you clearly express your intentions in legal documents, with the ultimate goal of producing legal documents which provide for everyone’s needs.
No matter where you are in your financial life, it pays to think about estate planning.
If you would like some guidance as you go through the process, a probate lawyer can help. To schedule a meeting with an attorney from Olson Probate, please call 714-847-2500.