In second (or third or fourth) marriage situations where one or both spouses bring in kids from the prior relationship, estate planning can get complicated. Almost everyone has a natural affinity for their own children and their own blood family members, which can make the planning process touchy in subsequent marriages.
In addition to the factors that everyone has to decide in designing their estate plan, those with blended families need to evaluate some of the following factors more closely:
- Who are the children of each spouse and what is the current status of their relationship with all family members?
- Are there any – or should there be any – prenuptial or antenuptial agreements in place?
- How are the assets currently owned? Is there a desire to keep most assets separate or joint?
- What kind of behavior in administering your estate that you expect your spouse to undertake after your death? Do you trust your spouse to honor your wishes?
- Does one spouse have significantly more wealth than the other?
The main concern in blended family situations is ensuring that each spouse’s share of the estate ends up with his/her intended beneficiaries. If each spouse has children from other relationships, those children’s inheritance should be protected even if their parent is the first spouse to die. For example, in most traditional estate plans for married couples who share all their children, all of the assets go to the surviving spouse and then after the surviving spouse dies, what’s left over goes to the children. In blended families, there is a risk that the children of the first spouse to die could be effectively disinherited or that the surviving spouse would waste the assets.
In designing an estate plan, everyone needs a Durable Power of Attorney, Living Will and Patient Advocate Designation, and Last Will and Testament. But in a blended family situation, you may want to evaluate whether a premarital or marital agreement should be in place and you would also have to evaluate more closely on how you want to structure your Trust. This means balancing the pros and cons of establishing a Joint Trust or separate Trusts. Separate Trusts make the most sense if you want to ensure control and certainty. A Joint Trust, as opposed to separate Living Trust, is one single Living Trust that you and your spouse execute and fund your assets together. It is common in marriages where almost all of your assets are joint and the intent would be to keep it that way. The major downside to a Joint Trust is that after the first spouse to die, the Joint Trust is not irrevocable (whereas it would be irrevocable if the first spouse had his/her own separate Trust) and the surviving spouse can still change the terms of the Trust. So it goes without saying that with a Joint Trust, there has to be a high level of trust between both spouses (although in some cases you could possibly structure your Joint Trust to become irrevocable after the death of the first spouse to die).
Every blended family is different and each presents its own challenges, but it is almost even more important to think about estate planning when you are in a blended family.