Ticking Off the Extra Boxes

With just over 40% of first marriages ending in divorce, blended families—made up of spouses with children from previous marriages—are becoming more and more common. The extra pieces in this family dynamic can lead to additional considerations when it comes to estate planning. 

“The easiest way to move forward, I believe, is [to] go into it with good communication between the parties,” says Bridget La Rosa of White and Williams in Manhattan.

Planning Is Key

La Rosa asks her clients to start by asking tough questions. What happens if both spouses die? Or the entire family? “The more you run through the scenarios and the more you can communicate and get the dialogue going, the better you’ll come through the whole process,” she says. “You can plan for the worst, and hope for the best.”

Reed Smith LLP attorney Cheryl Hader advises her clients to plan early and completely, and to keep that plan up to date as life changes. “People’s relationships change. Somebody who’s named a trustee, you can have a falling out with. Assets change,” she says. “The point is keep it up to date and work with a lawyer who’s going to really look out for your best interests.”

Having a blended family means there are extra questions. “There are a couple of extra boxes you have to tick off,” La Rosa says. 

Trusts

A trust is one of the most common means of estate planning with blended families. The surviving spouse has use of the income from the trust, Hader says, but they don’t control it and cannot direct it after their death. This ensures that children from the prior marriage are not disinherited by the surviving spouse. “On their subsequent demise, it wouldn’t go to the pool boy or whomever, it would go to the children from the first marriage,” La Rosa says. 

Depending on how the person who set up the trust dictates, its funds would then go either equally to the children of the blended family or just to the children of the deceased. “It depends on the relationship of the deceased spouse with the stepchildren,” Hader says. “It may be a perfectly fine relationship, and everybody may get along. Once one of the spouses has died, it doesn’t mean a good relationship is going to continue.”

Another way to avoid some conflict is by setting up a unitrust percentage that determines the annual income paid to beneficiaries. “Everyone is rooting for it to grow. So invest it in a way that it grows as much as possible, because the spouse is going to get 4% or whatever, but the more it grows, the more of that will be left for the remaindermen,” Hader says. “You might use insurance to basically get more liquidity into the estate so that children can have some money while the other money is in a trust for the spouse. Or vice versa, have the spouse be the beneficiary of a trust that gets insurance proceeds and give more directly to the children.”

Custody Concerns

Additional questions can revolve around guardianship for underage children. “Let’s say stepdad maybe doesn’t want to raise your kids, and maybe your husband from a previous marriage is really the natural guardian, right?” La Rosa says. “One of the things I tell any of my clients when they’re deciding on their planning, whether it’s through a trust or under their will, is ‘You guys have to agree on the guardian.’” 

Effects of Prior Marriages

In addition to dissolving a marriage, a divorce also dissolves the bequest to the ex. But some spouses in blended families may still have obligations from their divorce decree, such as insurance payouts or college fund contributions. “Your ex-spouse or your children, depending on what your divorce decree states, could be creditors of your estate when you pass away,” La Rosa says. 

Ultimately, when it comes to blended family estate planning, La Rosa says the focus is on maintaining harmony in the current family—and remembering the ultimate end goal. 

“You’re planning for someone’s legacy,” she says. “You’re planning for the next generation.”