Estate planning for the traditional family (married with children) can be complicated, but it is usually straightforward — each spouse typically leaves his or her estate to the other spouse, and the surviving spouse leaves his or her estate to the children. However, for the "blended" family, effective estate planning can be much more complicated.
A blended family is one in which either or both spouses were previously married and have one or more children from a previous marriage. The formation of a blended family brings with it a host of competing interests that may arise upon the death of one of the spouses. The competing interests may include:
- The surviving spouse
- The decedent spouse's children from a previous marriage
- The decedent spouse's children from the blended marriage
- The surviving spouse's children from a previous marriage
- A former spouse
Effective estate planning will help you to balance these competing interests upon your death.
Data collected from the Pew Research Center over a 25-year period indicate that the highest percentage change of divorce among married persons occurs for couples over 50 years of age.
|DIVORCE RATE BY AGE (per 1,000 married persons)
|Age 25 - 39
|Age 40 - 49
Because couples entering a blended remarriage tend to be older, they usually bring more wealth to the marriage that must be considered in estate planning, such as:
- Retirement plans
- Brokerage accounts
- Life insurance
- Real estate
- Personal property
To effectively balance the competing interests in your estate plan, a professional estate planner will consider the following estate planning devices to determine which tool is most effective for accomplishing your estate planning goals upon death.
If you die with property that you have not included in one of the following estate planning devices, then you die "intestate." When you die intestate, your state has rules to determine, by default, how your property will be distributed upon your death. These default rules, called the laws of "intestacy," are enforced through a court proceeding called "probate." These rules typically prioritize and protect spouses and children, to varying degrees.
Your estate planner will review these rules to determine how your property will be distributed if you die intestate. If distribution under the laws of intestacy satisfies all your estate planning goals, then you do not need any other estate planning devices. This is rarely the case, however, especially for blended families. If you want your children from your previous marriage to inherit your estate, but the laws of intestacy prioritize your spouse, then additional estate planning will be necessary to accomplish your goal.
If you do not want the state to determine how your property is distributed upon your death, it may be appropriate to execute a last will and testament or "will," in which you designate how you want your property to be distributed upon your death. If allowed in your state, your will might include a "no-contest" or "in terrorem" clause, which provides that if any beneficiary contests your will, they will not receive the benefit to which they are otherwise entitled. This can reduce the likelihood of future contest.
If you already have a will, it is important to revisit your will upon a significant life event that introduces a new competing interest in your property, such as a divorce, a new marriage, or the birth of a child. If, in your previous marriage, you designated your spouse to receive property upon your death, your divorce may operate to automatically negate that distribution. Your estate planner should review with you all the consequences of executing a last will and testament.
Probate proceedings can be expensive and can cause delay in distributing your estate. One way to avoid probate is to designate beneficiaries of property that will automatically pass upon your death. These may include:
- Retirement accounts
- Brokerage accounts
- Insurance policy benefits
- Joint accounts
- Title to real property
Because beneficiary designations on such accounts will supersede any contrary designation indicated in your will, you must be sure to update your beneficiary designations on such accounts. Using these non-probate or "payable-on-death" designations avoids probate and provides the benefits immediately upon your death.
One way of avoiding a contest between competing interests in a blended family is to set out your intentions for your estate plan in a prenuptial agreement. Your spouse may waive any interest in your estate to which he or she may be entitled upon your death or divorce. This can:
- Ensure protection for your children
- Inform competing interests of your wishes
- Avoid future contests
Another effective non-probate device is a trust. A trust enables you to provide for designated beneficiaries under specific terms that you impose. Common types of trusts for blended families are the "AB Trust," also called a "bypass" or "credit shelter" trust, and a "Qualified Terminable Interest Property" or "QTIP" trust.
Each of these trusts can provide estate tax benefits, while providing for your spouse for his or her life and still ensuring that your children inherit your estate upon the death of your spouse. Your estate planner will advise you on the specific details of each type of trust and choose the one that best accomplishes your estate planning goals. In any trust, it is important to think carefully about the appointment of a trustee to administer the trust and avoid any potential conflicts of interest.
There are other resources your estate planner may consider, such as:
- Financial power of attorney
- Advance directives for health care
- Tax implications
- Pre-mortem probate
For all estate planning considerations, open communication with your estate planner, and with your respective family members and loved ones, is key. If you are part of a blended family, contact your estate planner to avoid beneficiary contests in the future and effectively accomplish your estate planning goals.