Estate planning for blended families comes with particular challenges. With factors like the number of children of each spouse, age differences, personality differences, lifestyle expectations, and health status (among many others), no two families are exactly alike. Below are some of the most common issues we see come up when one or both spouses have children from a previous marriage.
Not realizing the effect of insisting that the estate plan be kept “as simple as possible.” Can a couple in a second marriage use Wills as their primary estate planning tool? Absolutely—in a situation where the couple signed a premarital agreement and kept some or all of their assets separate, Wills can be a fine choice. If no premarital agreement was signed or if the couple holds any assets jointly, a Will-based estate plan relies on trust more than anything else; that is, that the second spouse will not remarry without signing a premarital agreement with their future spouse or make changes to the Will after the current spouse passes away. In some instances this can work out, in others not.
Assuming that children from a prior marriage have more default rights than they actually do. When a person gets married without a premarital agreement, the spouse automatically has rights to a certain percentage of the decedent’s property, even if the decedent has children. The spouse also gets preference to serve as personal representative in the decedent’s estate.
Relying on instructions or a hope that someone will “do the right thing.” Sometimes in an attempt to avoid formal estate administration, people add a spouse or a child as a co-owner or pay on death (POD) beneficiary to some or all of their assets. When done in conjunction with an estate plan, beneficiary designations can be a great tool. In some cases, though, they are relied on to other family members’ detriment. The surviving co-owner or POD beneficiary becomes the legal owner of the account upon the other owner’s death, and has no obligation whatsoever to divvy up the account among other siblings, stepsiblings, or a stepparent. This strategy can also leave the surviving co-owner or POD beneficiary with an obligation to file a gift tax return.
Being in denial about family dynamics. A huge yet often overlooked value that comes from signing a Will or Trust is that it names one person to be in charge of the administration. This is as important in low net worth situations as it is in large estates. An estate with little assets, no Will, and beneficiaries who do not get along can lead to a very expensive administration. Whether it’s a levelheaded child or a totally independent person or bank, selecting someone in advance can help save everyone money (and drama!)
Commingling assets. Even if a person has a Will leaving all or some portion of their estate to the children, that Will only controls assets in their name alone. To the extent that a person titles assets with their spouse jointly, their children’s inheritance will decrease accordingly.
Not addressing long term care. What if one of the spouses needs assisted living or nursing care? Are separate assets going to be used first, or will joint assets need to be tapped into to pay for this care? What if the first spouse has already passed and the first spouse’s children have not inherited anything yet? If assets need to be exhausted for the stepparent’s care, are those children out of luck?
If you are in a blended family situation, it's crucial to take proactive steps to protect your children and ensure your wishes are carried out. An estate planning attorney can help you navigate these challenges and create a plan that addresses your unique family and financial circumstances.