Estate Planning Tips for Blended Families

Remarriage following divorce is extremely commonplace today. With almost 40 percent of first marriages ending in divorce, blended families are becoming more and more common. Blended families are made up of spouses with children from previous relationships. The extra pieces in this family dynamic can lead to additional considerations when it comes to estate planning.

Complications of second (or third) marriages can require an expert understanding of estate planning and estate tax laws. Estate planning also requires the ability to foster agreement between parties who may have very different goals. For legal advice about estate planning for your family’s future, talk to an experienced estate planning lawyer.

Planning Ahead Is Key

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

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

Managing Different Estate Plans

Alpharetta estate planning attorney Loraine DiSalvo, of Morgan & DiSalvo, works regularly with blended families and has cultivated a reputation for understanding the nuances and strategies applicable to these clients.

“We can handle the complicated factors of these families,” she says. “It’s amazing to me how many people who have blended families come in thinking, ‘Oh, we’ve got a really simple situation,’ then find out they’re not on the same page.”

It’s common for couples with only shared children to desire that the surviving spouse retain assets of the marriage until that person dies, then have all the remaining assets go to their children. When a married couple has children from prior relationships, however, this framework can be much more complicated.

DiSalvo lays out the scenarios she sees regularly in her practice:

• Each partner leaves their assets to their own children (or intended beneficiaries, if no children). Here, assets must stay separate during the marriage, as combining them can create problems. However, the estate planning aspect is relatively straightforward.
• The spouses want to provide some assets to the surviving spouse, then to their respective own biological children, or to all children. Depending on how much you want to pass to the surviving spouse, you can achieve those goals with wills, revocable trusts, or beneficiary designation.
• New spouses want the remaining assets after the surviving spouse’s death to pass to their children. This can get tricky when amounts or shares differ. For example, if spouses came into the relationship with differing asset amounts and want their own children to benefit proportionally to that starting point, as well as whether the assets will pass outright or in a living trust.

It’s critical for the partners to understand one another’s goals and to work with an estate planning attorney who can strategize how to get there. “Sometimes you run up against two people who have different opinions about what should happen,” DiSalvo explains. “I try to work with both of them to help them understand the upsides and the downsides.”

Setting Up a Trust

A trust is one of the most common estate planning documents for blended families. The surviving current 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 a spouse’s 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 whoever; it would go to the children from the first marriage,” La Rosa says.

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 potential conflict is with 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. 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 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 adult children.”

Child Custody Concerns

Additional questions can revolve around guardianship for minor 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.”

Retirement Plans

For a retirement account, tax provisions will potentially result in a surviving spouse receiving less than anticipated. “This is the most common misconception people have,” says DiSalvo. “I had a couple who wanted one partner’s assets to take care of the other, and then split the rest among all four children — they each had two. The partner wanted to do a trust for this purpose. I had to explain that because the bulk of the specific assets were in tax-deferred accounts, the interaction between the income tax rules and the trust rules — especially when the surviving second spouse is the intended beneficiary — just didn’t really make it favorable.”

DiSalvo adds that “most people have a tax-deferred retirement account, and for many, it can be their most significant asset. Layering the tax-deferred stuff into the overall estate planning goals is one of the more complicated aspects that I think is out there.”

Effects of Previous Marriages

In addition to dissolving a marriage, a divorce also dissolves the bequest to the ex. But some spouses may have obligations from their divorce, such as alimony. “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.

With estate planning for blended family structures, 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.”

Find an Estate Planning Attorney

Talk to your estate planning attorney about how to provide for your loved ones. A comprehensive estate plan can provide peace of mind and protect your family relationships. Estate planning can vary depending on state law. Visit the Super Lawyers directory to find an attorney in your area for legal advice about estate planning for blended families.