Estate Planning for Blended Families: Protecting Your Spouse and Your Children

Blended families are commonplace today. People often quote a Pew Research Center statistic that 16 percent of children live in blended families, but that figure is actually from a study done back in 2015. The current number may be significantly higher or lower. Regardless of the actual figure, estate planning is essential for families with children from prior relationships. The estate plan must ensure that everyone is cared for and minimize the risk of disputes, accidental disinheritance, and other issues.

 

How Estate Planning for Blended Families Differs From Estate Planning for a Nuclear Family

 

Blended families differ from nuclear families in that biological and stepchildren may be entitled to an inheritance from the estate. This can lead to clashing interests. The new spouse may be entitled to a portion of the estate, which can lead to uneven relationships. Biological children may feel they are shortchanged when the spouse receives their share.

 

There may be multiple children, stepchildren, and grandchildren expecting inheritances. Do they receive equal shares, or do the particular needs and ties of each person make unequal distributions more appropriate? How can a person navigate these challenges? Working with an estate planning attorney in Texas is critical to ensure a person’s goals for their blended family are accomplished.

 

A Basic Overview

 

Creating an estate plan is a similar process for both blended and nuclear families. The key difference is determining how each child will be accounted for in the plan. Furthermore, the spouses must decide who will serve as the guardian for each child if both parents die. They must determine the best fit for each child, taking into consideration the sibling relationships.

 

Additionally, assets and fund distribution must be covered. Spouses typically leave their estates to one another, but children from previous relationships cannot be ignored. One way to ensure they are cared for and receive a share of the estate is to create a trust for each child. This trust provides them with the desired inheritance from the deceased. However, other options are also available.

 

Estate Planning Options

 

When creating this plan, consider each family relationship. Certain estate planning options are commonly seen with blended families. Talk with an estate planning attorney to determine which option is best for the situation.

 

When a spouse dies, one option is that all assets may be placed in a family trust. The trustee of the trust, which may be the surviving spouse, then distributes the assets either based on the particular needs of each named beneficiary or in specific amounts at specific times, depending on how the trust is worded. Another option is to establish a marital trust, where all assets are managed by a trustee for the surviving spouse’s benefit. With this option, residual assets are usually designated for the children upon the passing of the surviving spouse. All children can be included in a marital trust.

 

Some couples decide outright ownership is the best option for their situation. All assets transfer to the surviving spouse under a will. No trust is established for the children. While this type of estate plan is easy to set up and implement, each spouse must trust the other to care for all children in the blended family.

 

Testamentary bequests allow a person to leave assets to each child in their will. Couples often hesitate to choose this option because they worry about hurting each other's feelings. However, this method is ideal when a person wants to give specific items to a certain child. The child inherits these items directly rather than through a trust. People often use immediate bequests to pass on sentimental items.

Creating the Plan

 

Once a person is aware of the options, the planning process begins. What must they consider when creating the plan? How can they reduce the risk of conflicts once they are gone? The following tips help ensure that everyone is on the same page and there are no surprises when the person passes away.

 

Clearly Define Goals

 

A person must identify what they want before moving forward with estate planning. They need to answer complex questions, such as how the spouse will be supported. This individual must determine what the biological children will inherit and whether anything will be left to the stepchildren. Clear goals are essential when creating the plan to ensure the person’s wishes are carried out with minimal disputes.

 

Open Communication

 

The person creating the estate plan must communicate their wishes to the family, including the spouse, biological children, and stepchildren. Doing so can minimize disputes and misunderstandings upon their passing. Family meetings or private conversations are effective if the decisions made are explained to the relevant parties. Many people avoid these conversations because they are uncomfortable, which can be a mistake. Have them now to prevent future disputes that could tear the family apart.

 

Beneficiary Designations

 

People should review their estate plans regularly and update them to reflect any changes in their life circumstances. When doing so, people must review all assets governed by beneficiary designations, as these designations override estate planning documents like a will. Furthermore, people should ensure they name contingent beneficiaries. If the primary beneficiary passes away before the estate plan is enacted, the assets will transfer to the named contingent beneficiary.

 

Short-Term and Long-Term Needs

 

People must account for both short-term and long-term needs in their estate plans. Family members often need access to funds immediately upon the loved one’s passing. The estate plan should guarantee they have these funds for regular expenses. A cash gift or trust with regular distributions is a way to make certain that they will.

 

Long-term expenses may be covered in several ways. However, many people choose to delay large disbursements for younger children. The individual determines when they should receive these funds. Often, the distribution is tied to a specific milestone in life, such as when a child graduates from college or reaches a certain age.

 

The Family Home

 

The family home holds both emotional and financial value, so people must consider this when determining how to handle it in their estate plan. Many couples want the surviving spouse to stay in the marital home after they pass and then to leave the home to the children when the surviving spouse dies. There are two ways to handle this.

 

A life estate allows the surviving spouse to remain in the home until their death or until they choose to move out. When they no longer reside in the house, title to the house passes to the children. A couple may choose this option when one party purchased the home outright prior to the marriage. They want their children to have the home they purchased rather than having it be split between the biological children and stepchildren.

 

Trust ownership is another option. The home is placed in a trust, and the terms of the trust dictate who can reside in the home and how it may be used. Furthermore, the trust terms outline the conditions under which the house may be sold or transferred.

 

State Laws

 

Every person creating an estate plan should consult an attorney, as state laws may dictate what is allowed. If the couple lives in a community property state, the surviving spouse is entitled to half of all community property assets the surviving spouse owned with the deceased spouse. A will cannot override this. However, if the couple has a prenuptial agreement, a probate court will consider this document when addressing any disputes. The surviving spouse will likely only be entitled to what was agreed upon in the prenuptial agreement.

 

Regular Updates

 

Children grow up, people change jobs, and life happens. A person must regularly review their estate plan and make changes as needed. A person might update their will while neglecting other estate planning documents. Review and update all components of the plan every three to five years. Furthermore, review and update the plan any time there is a significant life change, including the birth of a child, a divorce, or the death of a named beneficiary, executor, trustee, guardian, or agent. Documents to review and update include but are not limiting powers of attorney, healthcare directives, and guardianship designations.

Select an Executor Carefully

 

The person responsible for handling the administration of the estate can smooth the process and reduce family conflicts. Keep this in mind when selecting who to oversee the process. With blended families, selecting a neutral third party is often a good option. Doing so can help to ensure impartiality while avoiding biases. Another option is to choose co-executors from each side of the family. However, the co-executors must be able to work well together or problems and delays in administrating the estate will arise.

 

Blended Families and Estate Planning Issues

 

A lack of estate planning often results in assets not being distributed to the intended parties. Easily avoid this problem by creating an estate plan and reviewing it regularly. However, a traditional estate plan typically does not accomplish the goals of blended families.

 

Both parties might establish a traditional estate plan with a joint trust. When one party passes, the trust is divided into two sub-trusts. The deceased party’s sub-trust is distributed among all children of the blended family. However, the surviving spouse may then choose to leave their sub-trust only to their biological children, thereby excluding the children of the deceased spouse from that share. Many people establish a traditional estate plan with a revocable trust and their children end up in this unbalanced situation. An experienced estate planning attorney can help ensure this does not happen.

 

Spouses may want to consider not naming each other as trustees. Doing so can lead to issues between the surviving spouse and the stepchildren. Couples can avoid this by choosing a neutral third party to serve as the trustee. Again, an experienced attorney can help avoid these potential pitfalls.

 

Finally, when one spouse enters the marriage with significantly more assets, they want to ensure those assets are protected for the benefit of their biological children. The attorney can establish separate trusts to account for this goal. The assets acquired by the first spouse prior to the marriage will be held in one trust, the assets acquired by second spouse prior to the marriage will be maintained in a separate trust, and a third trust will be established for joint assets acquired during the marriage for fair distribution.

 

Proper estate planning to accomplish the goals of a blended family can be challenging. Work with an experienced attorney to ensure the process is handled correctly. Doing so will minimize disputes and other problems commonly seen in these situations. The attorney will help determine the best plan for the family’s unique situation.

 

Disclaimer:

Ruelas Andino Law, PLLC makes no claims as to the accuracy of the information contained within the external links in this blog article nor does it endorse any of the businesses contained in the links. Information contained in this blog is for informational purposes only and may not be construed as legal advice.