Estate planning is important for any family – after all, who wants to argue with their family members about what mom’s intentions were for the house at her funeral?
The need for estate planning in blended families is even greater because there are more people in your life who can make a legal claim on your property after you pass. You are a member of a blended family if you are remarried and either you or your spouse has children from a previous marriage.
Estate Planning Checklist for Blended Families
As the average life expectancy grows, more and more people remarry in their later years. This increases the number of blended families around the country. Each time you make a major relationship change like this, you should discuss your current plan with your attorney.
Here is a checklist of items you should discuss with your new spouse and your estate planning attorney.
Who Gets the House?
If you owned a house before your new marriage, will your new spouse move in with you? Will their name be on the deed? If you die, do you want your surviving spouse to continue living there? Do you own other property, such as a farm that’s been in your family for generations that you consider your children’s birthright?
Talk to your estate planning attorney about different legal tools you can put into place to ensure that your intentions with your property are carried out.
One of these tools may be right for your situation:
- Getting a prenuptial agreement on paper before you sign the marriage certificate. Having this agreement in place is a smart legal move. It can save countless hours and thousands of dollars if you and your spouse end up being one of the 50% of marriages that fail.
- Giving your spouse a life estate in the home, allows the survivor to live on the property for the rest of their life. The home will then pass to your descendants. Talk to your attorney about imposing requirements, such as an obligation to maintain the home and pay taxes.
- Putting property ownership in a trust can protect it from creditors and ensure that the people you want to benefit from the property can. A trust can help you avoid probate and estate taxes that can otherwise delay receipt of property ownership. A trust can be structured to provide for your surviving spouse for the rest of your life. The remainder of the trust can be distributed as you wish among your children and grandchildren.
- Setting up a Limited Liability Company (LLC) or Family Limited Partnership (FLP) for your property is another way to ensure that property remains in your family and avoid probate fees and estate taxes.
Providing for Your Children with a Former Spouse or Partner
Trusts are also excellent legal vehicles to set your children up for success, especially if you have strained relationships with a former partner. A trust can be set up to provide funds for these children, including for college or buying a home, in a way that is legally protected from spendthrift parents and creditors. It is a good safety net that will ensure your children are provided for, even if you can’t be part of their everyday life.
How and What Each Spouse’s Child Will Inherit
Do you have any heirloom jewelry you want your children to inherit? What about your father’s watch? It’s not enough to assume that these items will go to the intended person. If you remarry, your spouse will be able to make certain claims against your personal property that you own. This could make it difficult for children of the deceased to claim what you may otherwise consider their birthright.
Retirement Accounts and Beneficiaries
People often list their spouses or children as beneficiaries of retirement accounts or other savings plans like IRAs and then forget about updating their accounts. If you are entering a new marriage or leaving an old one, you should take another look at these accounts. Some people want to keep their ex as a beneficiary for one reason or another, but others would prefer their money go to people who are still in their lives.
The same goes for any life insurance policies or health care plans you have. You should keep updated copies of these documents in a safe place so they are easy to locate when the time comes.
End of Life Care
In a similar vein, it’s always important to have a plan in place for if you become unable to make your own financial and health decisions. You should also know who will be the executor of your will after you pass.
Discuss your intentions with your spouse and your children. You should also put into place financial and medical power of attorney documents that are on file with your attorney and primary health care provider.
These documents will allow you to designate one or more people as your legal representative(s). They will have the authority to make decisions about your bank and retirement accounts as well as your property, and be able to give consent to medical procedures.
The executor of your will is responsible for carrying out your estate planning wishes. Is this a job you want to fall to your new spouse, or do you want responsibility to fall to one of your siblings or perhaps one of your adult children?
An Example of Estate Planning for Blended Families
Estate Planning for blended families can be difficult. Make sure your estate planning documents are not obsolete by talking to an estate planning attorney. Read the story of Jake and Chloe below on how blended families can affect your estate planning.
Blended families bring their own set of issues to estate planning.
Let’s say Jake and Chloe get married and create a blended family. Jake has 2 kids from a prior marriage—Amanda and Samantha, 20 year old twins. Chloe has 2 kids from her prior marriage—Jimmy and Steve, ages 22 and 20.
After Jake and Chloe have been married for a couple of years, they have Zoey together. Amanda and Samantha have only met Jimmy and Steve a couple of times—at the wedding and at the rehearsal dinner. Christmases have not been spent as one big happy family. Now with the birth of Zoey, everyone is hanging out together much more.
When Zoey is a year old, Jake and Chloe go into a lawyer to get their estate planning done. The attorney recommends a Revocable Living Trust and Powers of Attorney. The attorney also tells Jake and Chloe that they are the poster children for estate plans that go awry—a blended family with a joint child. Here’s why.
1. Jake and Chloe, if like most parents, are very protective of their children. Each will want to make sure that what’s fair for one set of kids is fair for the other. This could require some detailed negotiation especially if:
a. Jake feels his girls are very responsible and Chloe feels his girls are spoiled brats.
b. Jake feels that Chloe’s kids weren’t raised to respect the value of a dollar and so restrictions should be put on their inheritance. Chloe heartily disagrees.
2. Jake and Chloe have 4 adult children and one very young child. They feel that more money should be allocated to Zoey, in the Revocable Living Trust, since she needs to be raised whereas the other 4 kids are all grown. They need to take into account how this inequitable split will impact the older 4 kids.
a. How upset will those 4 kids be? Upset enough to try to contest the Revocable Living Trust? Upset enough to choose never to have a relationship with Zoey? Upset enough to hold the decision against the stepparent—after all, the adult child’s parent would never have made this decision if he/she did not marry the stepparent?
3. What if Jake’s ex-wife comes from a very wealthy family and Amanda and Samantha will inherit a considerable fortune when their grandparents and mother pass away. Should this impact how much money Amanda and Samantha get from Jake and Chloe? Maybe, but again there should be a strong emphasis on the impact that will have on the family dynamic.
4. There are many blended families that seem to get along very well until a spouse dies. Let’s say Chloe dies first. It may have seemed that Jake got along well with Jimmy and Steve. Once Chloe is gone, Jimmy and Steve demonstrate their intense dislike for Jake. This scenario is much more common than you would think.
5. Not only do Jake and Chloe have to decide how to divide money between all of the children, but they have to decide how they are going to divide assets between themselves. All of this information needs to be put into a Revocable Living Trust.
a. Many people in Jake and Chloe’s situation, who have been married and divorced before, keep all finances separate. If Jake dies first, is he leaving all of his assets to Chloe? Is Chloe leaving all to Jake? OR are some of Jake’s assets going immediately to Amanda and Samantha when he dies OR are some of Chloe’s assets going immediately to Jimmy and Steve when she dies?
I typically find that if Jake and Chloe have been married for 10+ years, Jake and Chloe will leave all of their assets to each other. This is not necessarily the case if they have been married less than 10 years.
All of these issues are present in some form or fashion in many families. However, the dynamic of a blended family makes these estate planning issues potentially more painful and divisive. What do you do?
You make sure you have all of your estate planning documents in order and communicate. Consulting a lawyer to make sure your estate planning affairs are in order can be quite important.
Thinking about death and divorce is never fun. However, having a plan in place for your family is a smart move. You can save your family thousands of dollars in taxes and legal fees and significantly reduce heartache in a difficult time.
At the end of the day, the only right answer of what is best for your blended family is what you think is best. An experienced estate planning attorney can help you know which decisions to make and will ask the right questions.
To discuss your blended family’s estate planning needs, contact me to set up an appointment.