Estate Planning for Blended Families

Estate planning is complicated enough for a married couple with mutual children. But for families with "his and her" kids from prior marriages, the issues can be even more difficult. Spouses usually want to take care of each other, first, and only take care of their respective children after the death of both of them. But not always. Sometimes one person wants to take care of their children from a prior marriage even if their spouse survives them. Sometimes one person has separate property that they want to pass to their children sooner rather than later. And often, both partners are concerned about maintaining (or not maintaining) a relationship with stepchildren that isn't always easy.

A common estate plan for a blended family is to create two (and sometimes three) trusts at the death of the first spouse. One holds the assets owned by the surviving spouse and the other holds the assets of the deceased spouse. Both trusts are held for the benefit of the surviving spouse for his or her lifetime. The survivor can change the terms of the trust that holds their assets, but the terms of the trust that holds their deceased spouse's assets can't be changed -- it becomes irrevocable at the first death. At the death of the second spouse, the assets of the first spouse to die go to that person's children and the assets of the second person to die goes to that person's children. While that sounds simple enough, families sometimes balk at the complexity of it. But they shouldn't. Such a plan can really protect a surviving spouse's relationship with stepchildren and provide them with flexibility if that relationship doesn't work out they way that they expected it would after the death of their spouse.

Recently, I met with a client who was concerned that her husband of more than 20 years didn't trust her enough to take care of his son if he died first. To her, it was exclusively about trust. For her, the fact that they'd been married for so long was proof enough that their estate plan should be simple--they should just leave everything to each other, without all the complications of creating two different trusts.

But from my perspective, there was another way to look at--creating a trust to hold her husband's assets for her benefit if he died first might be helpful to her, not harmful. To my mind, it wasn't about whether or not he 'trusted' her, but rather whether or not he wanted to reduce the potential burden on her of dealing with his son for her lifetime. If his assets were in an irrevocable trust for her lifetime benefit she would not be able to use any of that money for his son. If his son asked for help, she would be welcome to make a gift to him from her own trust, but her husband's assets would be off limits to that son for her lifetime. Having a trust like this, I told her, can make saying "no" easier. Creating two trusts makes it clear to children that they only inherit after the death of the second spouse.

Years ago, I had another client, a couple who had been married for many years. They each had children from prior marriages, and wanted to treat them all the same. When we met to do their estate plan, they spoke fondly of their blended family and how the children enjoyed each other's company and how they spent family holidays together. Their plan, though, did divide into two trusts, even though they felt this wasn't really necessary. They wanted to leave an equal share of both of their trusts to all five of the children.

Then, the wife died. And suddenly, her three children became suspicious and aggressive towards their stepfather, demanding personal items that had belonged to their mother and making him feel unsafe and unhappy. Within a year, he amended his survivor's trust to leave all of his assets to his two daughters, excluding his wife's three children, with whom he'd become estranged. Their estate plan allowed him the flexibility to amend his survivor's trust while providing his deceased wife's children with the security of knowing that ultimately, their mother's assets would pass to them.

If you or any of your friends have questions about how to create a Will or a trust for a blended family, please feel free to get in touch or to share this article with them.