Blended Families Have At Least Two Major Estate Planning Issues

Yesterday I met with two different sets of couples, both of whom where involved in blended families. Each spouse had children from a prior marriage. Whenever we set up an estate planning legal program for a blended family, there are always special issues that we have to address. But in every blended family estate plan, we seem to deal with two major issues.

We Want To Protect Each Other

Many spouses involved in a blended family situation fear that when their spouse dies, the spouse's children will force the surviving spouse out of the house - and the surviving spouse will wind up on the street. Or, they worry that the children of the first spouse to die will badger the surviving spouse for "their inheritance."

Often, the relationships can be strained when a parent remarries. The children fear that the new spouse is in the marriage for the wrong reasons - like money.

I worked with one blended family. The spouses were 17 years apart in age. So, the children of the older spouse were not much younger than the new spouse. The older spouse wanted to make sure that when the older spouse dies first, his children receive most of their inheritance right then. The older spouse did not want his children to have to "wait" to receive their inheritance until after the younger surviving spouse died. So, we set up a program so that the children of the older spouse will receive a significant part of their inheritance when the older spouse dies.

The commonly referred to "I Love You" last will may not be appropriate for many married couples. The "I Love You" last will simply leaves everything to the surviving spouse. Some couples in a blended family situation worry that if everything is left in outright ownership to the surviving spouse, then the surviving spouse will leave everything to the children of the surviving spouse - excluding the children of the first spouse to die.

So, some blended families use trusts so that when the first spouse dies, the assets of the first spouse to die are placed in trust. Perhaps the surviving spouse is the trustee of that trust. Perhaps the surviving spouse can spend those assets for the surviving spouse's health, education, maintenance or support (the common HEMS standard). When the surviving spouse later dies, the assets revert back to the beneficiaries of the first spouse to die (often, the children of the first spouse to die).

Want To Protect The Children

Many blended families worry that there will not be a "fair" distribution of assets after both spouses die. But different people have a different definition of what is "fair".

Example: William had two children. Sylvia had three children. They married later in life and created a blended family. The following are some examples of how they could leave things after both spouses die:

  • Equal by heads. Perhaps they think "fair" is leaving whatever they have after both spouses die five ways equally.
  • Equal by family. Perhaps they think "fair" is leaving William's "half" to his two children, and Sylvia's "half" to her three children.
  • Let the surviving spouse decide. Perhaps the couple will want to protect the surviving spouse by leaving all to the surviving spouse, and allowing the surviving spouse to later decide how assets should be divided after both spouses die.
  • Perhaps the first spouse to die (let's say that's William) leaves his assets to a trust and permits Sylvia to "use" these assets during her lifetime, but when Sylvia dies, the remaining trust assets go back to William's children. And, of course, Sylvia will leave her assets to her children.

While other important legal issues exist when blended families set up their estate planning legal program, providing for the well-being and the financial security of the surviving spouse, but also providing for a "fair" distribution to the two sets of children, are two issues that must be address the right way to make sure chaos and conflict is avoided later.