Estate Planning for Blended Families

Use these links to jump to different sections:

• Caution: Outright Gifts are Out of Your Control
• Caution #2: Tax-Deferred Assets

Remarriage following divorce is extremely commonplace today, and many of us are familiar with the complex relationships of exes and steps. When it comes time to plan for how you want your estate to pass when you die, the complications of second (or third) marriages can require not only an expert understanding of estate planning and tax laws, but also the ability to foster agreement between parties who may have very different goals. 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 transferred to their children. When a 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:

1. Each partner leaves their assets to their own children (or intended beneficiaries, if no children). Here, assets must be kept separate during the marriage, as combining them can create problems. However, the estate planning aspect is relatively straightforward.
2. The spouses want to provide some assets to the surviving spouse, then to their respective own children—or to all children. Depending on how much is desired to pass to the surviving spouse, goals can be accomplished via wills, revocable trusts, joint ownership with a right of survivorship, and/or beneficiary designation.
3. Spouses want remaining assets after the death of the surviving spouse to pass to their children. This can get tricky when amounts or shares differ—for instance, if spouses came into the relationship with differing asset amounts and want their own children to benefit proportionally to that starting point—as well whether the assets will pass outright or in a trust.

In any of these circumstances, it’s critical for the partners to understand one another’s goals, and to work with a seasoned estate planning attorney who can strategize how to get there. “Sometimes you run up against two people who have just entirely 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.”

Caution: Outright Gifts are Out of Your Control

DiSalvo recommends blended families carefully consider how they want their assets to end up, and to consider using trusts to best ensure that their specific objectives are achieved. “If I want to make sure that my spouse can benefit but not direct the assets to a new spouse, or other children and cut out my child, the trust is the best option,” she says.

Caution #2: Tax-Deferred Assets

For a retirement or 401(k) account, income tax provisions will result in a surviving spouse potentially 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 to him that because the bulk of the assets were in tax-deferred accounts, the interaction between the income tax rules and the trust rules—especially when the surviving spouse is the intended beneficiary—just didn’t really make it favorable.” DiSalvo adds that “most people have a tax-deferred retirement, 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.” If you have a blended family, talk to an experienced estate planning attorney for assistance with determining how best to provide for those you care about. For more information on this area of law, see our overviews of estate planning, wills, trusts, and probate and estate administration, or reach out to a law firm for legal advice.