When people get remarried, they often bring children from prior marriages into the mix. Such unions are often referred to as a “blended” family or a “Brady Bunch” family.
Whenever you merge two families into one, you are naturally going to encounter some challenges. To this end, blended families present a number of particularly challenging legal and financial issues from an estate planning perspective. We often say that all parents should have an estate plan in place, but the legal and financial complexities surrounding a blended family make estate it absolutely necessary.
If you have a blended family and something happens to you, without a carefully considered estate plan, your loved ones are at significant risk for unintended consequences, unnecessary litigation and potential family conflict. As former litigators with experience in family law and estate planning, we see things from a different perspective at Family, Wealth & Legacy Legal Solutions (FWLLS). Our experience, both personally and professionally with these issues, puts us in a position to help your family avoid life’s most common legal issues for blended families that lead to family disfunction, pain and legal costs for blended families.
Naturally, every family is different and presents their unique set of issues that must be addressed in designing a customized plan to keep your loved ones out of court and out of conflict. But, based on our experience, here are a few of the most common issues blended families should keep in mind when creating or updating their estate plan.
1. Avoiding The Unintended Disinheritance & How to Maintain Your Assets
If you get remarried and have children from a previous marriage, you need to think about how you want to balance providing for your new spouse and your children from your previous marriage, in the event of your incapacity or when you die.
A common misconception is that by keeping your assets separate and maintaining separate financial accounts, each spouse can pass their inheritance to his or her own children. While this is possible, it can be difficult, unless you know exactly what you’re doing and regularly monitor your accounts and beneficiary designations. To make this strategy work, you need to ensure that ALL of your assets will avoid probate through beneficiary designations and that the accounts and amounts in them are held in the exact way that you would want your assets to pass down to your spouse and children. If one mistake is made, your family will be tied up in probate court for a year (or much more), pay significant attorney fees and court costs, and even worse, cause potential conflict between your spouse and children after you’re gone.
Keep in mind, if you and your spouse commingle your income and assets, then the new spouse will have claim and control of those assets when you die as the joint owner with right of survivorship. This will result in everything going to your spouse and leaving your kids with nothing. This is what we would refer to as the “unintended disinheritance.” It happened to my family, so could it happen to yours?
It is quite common that couples in second marriages put both of their names on the house, banking and financial accounts. If, and when, something happens to one of them, the other now is the sole owner and upon their death, everything will then only go to their children, or “heirs at law.” It is our experience that this is not the result most blended families would have wanted. They would have preferred a reasonable division of their wealth between their spouse and their children when something happened to them, or minimally, that the surviving spouse can use the remaining funds during their life, but at the second death the money would be equally divided between both of their families.
Correspondingly, if people are approaching their planning through a DIY approach and simply trying to keep their assets separate, expecting that their assets will go to their children. What they don’t realize is that if they don’t own them in the exact way they should, that the law mandates that those assets would be equally divided between their spouse and their children regardless of whether that is what they intended or wanted.
There are a lot of moving parts and things to consider when assessing how a blended family should maintain their assets and implement their estate plan. That’s why it’s so important that they are educated and empowered to make decisions for their family to implement a thorough and customized estate plan that will ensure they get the result they want for their family.
2. Timing and When Everyone Will Receive Their Inheritance
If you have children you want to leave an inheritance to them, you need to consider how and when you want those assets to be passed on. For example, what would happen if you die prematurely or if your spouse is significantly younger than you? Do you want your kids to wait until your new spouse dies to receive their inheritance, or do you want them to receive it immediately following your death? Perhaps you’d want a hybrid in which your children receive a small inheritance at the time of your death, and they receive the rest upon the death of your new spouse, which could be many years in the future.
Establishing trusts can protect those assets and stipulate when the kids receive their inheritance. You may want to provide your children with some of their inheritance, such as proceeds from a life insurance policy, upon your death, and then release the rest at some point in the future. Or if your kids are very young, you may decide to leave that decision up to your spouse or a third-party you trust, who can better determine the most advantageous time to pass on your children’s inheritance to them.
As your Personal Family Wealth & Legacy Lawyer®, we will work with you and help make decisions that take into account your unique family dynamics, assets, and potential areas of risk and conflict. We will educate you on the many options available, so you can decide the optimal time to pass on your wealth and other assets to your heirs to ensure it has the maximum benefit for everyone involved.
3. Carefully Consider Your Trustees
A common scenario for blended families is for one spouse to set up a revocable living trust that names themselves as the trustee during his or her lifetime, with the surviving spouse named as successor trustee once the first spouse dies. Yet, this would leave all decisions related to the trust assets to the surviving spouse, which could cause conflict between your children and surviving spouse.
For example, the new spouse may choose to invest the trust assets conservatively, ensuring he or she has enough money to live comfortably for a few decades, instead of investing the assets for growth. On the other hand, the children—particularly if they are younger—might be better off having the assets placed into higher-risk investments, which can offer better returns in the long run, but leave less income for the surviving spouse.
On the other hand, your spouse may spend the remaining assets on lavish vacations, luxury purchases upgrades to their home or a new significant other. If your children are watching their inheritance get depleted, naturally, they may question the decisions of your former spouse. All of which will lead to conflict and potentially, litigation between your family after you’re gone.
In each of these examples, it may have been wise to name a trusted friend, relative or professional advisor to serve as a neutral third-party successor trustee. That way someone can act as an impartial middleman or mediator, to make decisions fairly and balance the interests your children and surviving spouse.
4. Preventing Conflict
If you are in a second (or more) marriage, with children from a prior marriage, the conflicting interests of your children and spouse can create serious tension and competing interests between them in the event something happens to you. To reduce the likelihood of conflict, your estate plan needs to contain clear and unambiguous terms, spelling out the beneficiaries’ exact rights, along with the rights and responsibilities of executors and/or trustees. Such precise terms help ensure everyone knows exactly what you intended.
Additionally, it’s essential that you meet with everyone within your blended family while you’re still alive (and of sound mind) to clearly explain your wishes directly. Sharing your intentions and hopes for the future with your new spouse and children from a prior marriage can go a long way in preventing disagreements over your wishes for each of them.
As your Personal Family Wealth & Legacy Lawyer®, we can even facilitate these meetings to help ensure your blended family maintains a harmonious relationship no matter what happens to you.
5. Planning For Incapacity
In addition to planning for your eventual death, you must also plan for your potential incapacity. In this case, you’ll need to discuss how planning vehicles for your incapacity, such as a Financial Power of Attorney, Health Care Power of Attorney, and a Living Will are to be handled.
For example, if you become incapacitated, who would you want to make your legal, financial and medical decisions for you? If your children are young, it’s best to leave those decisions up to your surviving spouse. However, if your children are older, you may want them included in the discussion of how such decisions will be made. Alternatively, you may prefer to name one of your adult children as your decision maker, or you might divide the different duties between your spouse and adult children.
Regardless of what you choose, we can support you to create an estate plan that ensures your incapacity will be managed exactly how you would want in every possible scenario.
Bringing Families Together
Along with other major life events like births, deaths and divorce, entering into a second (or more) marriage requires you to carefully review and rework your estate plan. When children from a prior marriage are involved, updating your plan becomes exponentially more important.
As your Personal Family Lawyer®, we’ve been specially trained to counsel blended families on how to properly protect their assets in a manner that’s best for both the spouse and any children involved. We will ensure that you and your new spouse can clearly document and communicate your wishes to avoid any confusion or conflict over how assets and/or legal agency will be managed and passed on in the event of one spouse’s death or incapacity.
If you have a blended family, or are in the process of merging two families into one, sit down with us, your Personal Family Lawyer® to discuss your different planning options. Contact us today to schedule your visit.
This article is a service of Family Wealth & Legacy Legal Solutions (FWLLS). We do not just draft documents; we ensure you make educated, informed and empowered decisions for yourself and the people you love. That’s why we offer a Family Wealth & Legacy Strategy Session™, during which you will get educated and begin to prepare to avoid life’s most common legal problems and get a plan in place to make the best possible choices for the people you love. You can begin by calling our office today to schedule a Family Wealth & Legacy Strategy Session and mention this article to find out how to get this $750 session at a significantly discounted rate, or even for free.