Blended Families: The Not-So-Simple Estate Plan
Blended families, or families that consist of a couple and their children from this and/or previous relationships, may not realize the estate plan they currently have in place doesn’t fit their needs. It is common that blended families will arrange their finances as if their estate is your average estate plan when, in fact, for many blended families that is not the case.
For blended families, we must consider the balance of both the spouse and the children as opposed to your usual estate plan where you are only considering the present needs of your spouse. For example, for your average estate plan a spouse may choose to give all of their assets to their surviving spouse and in the event the surviving spouse had predeceased them then the assets go to the children. Using this same example, if you are a blended family, you could be disinheriting your children. Only in the event the surviving spouse has predeceased do your children receive an inheritance. If the surviving spouse is alive then they receive the inheritance and upon their death their inheritance passes to who they have chosen in their own estate planning documents—which may not include your children.
Also considering your incapacitation, who is the right person or persons to handle your financial affairs and your medical decisions? Are you supposed to put your spouse’s feelings and wishes before your children or vice versa? These are difficult questions that need to be addressed when considering a blended family estate plan. These questions can be answered using various estate planning tools. In considering the best estate plan for a blended family you must consider all of your options.
Last Will and Testament/ Revocable Living Trust
Whether you are a blended family or not, your estate plan can include a Last Will and Testament or a Revocable Living Trust. Regardless of the type of document, in a blended family your estate plan will attempt to balance the competing interests between your spouse and your children. Both have an interest in your assets and both can be at odds should you pass away without putting certain mechanisms in place. For example, if you have real property that you purchased prior to your marriage, do you want your children to receive an inheritance of that real property? What if you want your spouse to continue to reside in the real property after you pass away? These are all practical considerations of a blended family estate plan.
Whether it is a Last Will and Testament or a Revocable Living Trust, who will you choose to ensure those assets are transferred to the people you choose? To the extent that you chose to have a Trust that provides monies to your spouse until he or she passes and then the remaining assets to be divided amongst your children there can also be a conflict. Especially if you choose for your spouse to be the Trustee of the Trust. This means your Spouse will have sole control of the assets when you pass away, allowing them to spend the Trust assets lavishly and unfettered. Again, this can place your spouse and your children at odds because they both have competing interests. Consulting with an estate planning attorney can provide options to ensure your desired goal is met whether it be only providing for your spouse or it be ensuring your spouse is taken care of while also ensuring you still have assets left to give to your children.
Title of Assets
Let’s also consider that you may have joint assets with your spouse. If that is the case, there is a chance that it won’t matter what you put into a Last Will and Testament or Trust. If your assets are titled jointly with your spouse, your assets may automatically pass to your spouse as the surviving joint owner of those assets. As such, the estate plan you think you have in place may not achieve the goal you desire.When setting up your estate plan it is imperative that you also consider the assets you currently have and how they are titled to address any potential for the assets not to pass through your Last Will and Testament or Trust. An experienced estate planning attorney should review the titling of your assets when advising you of your estate planning options.
Power of Attorney and Advance Directive Agent(s)
In planning for incapacitation, many conflicts arise in blended families in the division of authority or responsibility. In any marriage it can be expected that you would wish for your spouse to make health and financial decisions in the event you cannot. However, what if your spouse and your children do not get along? Some factors to consider include how long you have been married to your spouse and the relationship between your spouse and your children when deciding who you will name as your Agent to make those decisions. Again, if you are the glue that holds the family together it can be problematic if you become incapacitated. Thus, it is best to provide clear instructions and consulting with an attorney can provide options to suit your needs.
Premarital Agreements can be essential to any blended family estate plan. In a Premarital Agreement, both spouses are upfront about the division of their assets in the event of death. For couples that have Premarital Agreements in place, it is imperative that should they wish to change any aspect of the division of assets that are mentioned in the Premarital Agreement that any change be done by amending that Agreement. Your Last Will and Testament may not override your Premarital Agreement if there is a conflict between the two documents. For example, if you provide in your Premarital Agreement that you spouse has the right to purchase the real property at less than fair market value and you include in your Last Will and Testament that your spouse has to purchase the real property for fair market value those clauses are conflicting. Such a change would require an amendment of your Premarital Agreement should you wish for your that provision in your Last Will and Testament to be upheld. Any document that you currently have place that discusses the disposition of your assets should be reviewed by your estate planning attorney when advising you of your estate planning options.
Most divorcees are primarily concerned with ensuring they have updated their Last Will and Testament or Trust to take out any clauses referencing their ex-spouse, but fail to change their beneficiary designations. Many spouses assume that their Last Will and Testament or Trust will trump all other documents. However, that is not the case when it comes to beneficiary designations. If you do not change your beneficiary designation to remove your former spouse and name a new beneficiary, that beneficiary designation will trump any other estate planning document for that particular asset. In essence, your former spouse could still inherit from you even if they are not named in your Last Will and Testament or Trust. When consulting with an experienced estate planning attorney it is imperative you provide them with your asset information, including your beneficiary designations.
Blended families should consider consulting with an experienced attorney to ensure they are aware of all of their estate planning options.