If a couple is married for the first time with young children and are working on your estate plan, the decisions about where the assets go are usually easy. Most parents in that situation want their entire estate to go to the surviving spouse, and upon the death of the surviving spouse, equally to their children. There may be difficult decisions about who will serve as guardians of the children or trustees over the children’s property, but typically it’s straightforward to decide where the property will go.
The planning situation is more complicated for the ever-increasing numbers of blended families. There may be children from several marriages involved, making estate planning more complex. Couples may bring an unequal number of children into the marriage, as well as unequal assets. A spouse may want to ensure that their widow is provided for, but may be afraid to leave everything to that spouse out of fear that at the death of the second spouse, that spouse will leave everything to their own biological children. In these situations, the children of the surviving spouse sometimes hit the inheritance lottery, while the children of the first spouse to die inherit nothing.
Planning can also be complicated when either spouse brings young children into the marriage. The non-biological parent may love and raise those children as their own, but unless the children are formally adopted, for estate planning purposes, they are not legally related to the non-biological parent. Therefore, if that parent dies without a will or trust that provides for them, these beloved children will not inherit from their stepparent.
There are many options for estate planning for blended families that will treat everyone fairly. At a minimum, it is imperative that parents of blended families have a will in place. If they don’t, it’s almost inevitable that someone will be treated unfairly. However, for blended families, wills are unusually inadequate estate planning. Although parents of blended families often create reciprocal wills in which half of everything is left to the husband’s children and half is left to the wife’s children, wills are not carved in stone. It’s not at all uncommon for a surviving spouse to change their will at the death of the first spouse and cut the stepchildren out of the estate plan completely.
In my experience, there are two estate planning options that work well for blended families . The first is to create a revocable trust that becomes irrevocable at the death of the first spouse. Typically, all of the couple’s assets are titled to the trust. Upon the death of the first spouse, the surviving spouse has the right to use the assets in the trust for their support, subject to certain limits, such as the rights to income only or the limited use of principal for living expenses. With a properly drafted trust of this sort, the surviving spouse will not have the “power of appointment” and will not be able to change the trust’s ultimate beneficiaries. Hence, under this approach stepchildren cannot be disinherited by the surviving spouse.
A second option is for each spouse to leave a certain amount of money to their own children in their estate plans, rather than leaving their entire estate to their spouse. In that situation, the children will not have to wait for the death of their stepparent in order to inherit. This works well in situations when the children are mature adults and there are sufficient assets to provide for the surviving spouse even after the children’s inheritance. One way my clients often accomplish this result is by funding a life insurance policy payable to their children, and then leave their estate to the surviving spouse.
Please note that both of these approaches may be affected by the elective share and other legal inheritance rights of surviving spouses that cannot be modified unless they are waived, typically in a pre- or postnuptial agreement. While an attorney’s advice is always important, it is critical that blended families work with an experienced estate planning lawyer in formulating their plan.
Estate planning with blended families can be complex and each situation is unique. It’s important for couples to keep the lines of communication open and to be aware that it can be a sticky situation for many families. However, with proper planning, many unfortunate issues that often arise on the death of a stepparent can be avoided completely.