Protecting Inheritances in a Blended Family

Blended families have estate planning challenges differing from traditional families, explains a recent article from The Record Courier, “Estate Planning for Blended Families.” A blended family is one where one or both partners have children from a prior marriage. The details vary, but the concern is the same: the possibility for the children to be disinherited if after one spouse dies, the surviving spouse reduces or eliminates any provisions made for the deceased spouse’s children.

A well-drafted estate plan, created by an experienced estate planning attorney, can address this issue to ensure that the deceased spouse’s children are protected and provided for after the death of their parent.

When creating the estate plan, consider what would happen if the surviving spouse remarried. This frames the drafting process in an optimal way for the children. Provisions should be made to protect them and a number of strategies may be used.

A simple last will and testament or even a revocable trust with no provisions typically won’t be enough to address the complex needs of a blended family. When the first spouse dies, the surviving spouse remains free to change the terms of their will, which could place the children of the deceased spouse at a disadvantage.

Let’s say Gary and Helen are married, each with children from a previous marriage. Gary wants to give his entire estate to Helen when he dies. If Gary dies first, there’s no legal reason for Helen to give any of Gary’s assets to his biological children.

There are any number of solutions. If Gary really wants to cut his children out of his will, he can talk with them and explain his thinking. He can also have an estate planning attorney include a “no contest” clause in his will. If any named beneficiary challenges the will, they will lose any inheritance and are treated legally, as if they have predeceased the decedent. Gary could also use a revocable living trust, which would avoid the estate being probated and deny the children an opportunity to challenge his will.

A better solution would be to craft an estate plan that benefits both Gary and Helen’s children. Harry’s children could receive a partial outright distribution when Gary dies, with the remaining estate passing to Helen. A trust could be created for Helen’s benefit, but the remaining trust assets could go to Gary’s children when Helen dies

Designating an independent fiduciary can help ensure that the children of the deceased spouse have sufficient assets. The independent fiduciary can protect the children’s interests with no risk of self-dealing. An oversight by an independent fiduciary also minimizes the chances of conflict between children and stepparents.

A properly designed estate plan protects the children of both parents, regardless of which spouse dies first. One commonly-used strategy is to create a trust leaving the assets to the surviving spouse during the spouse’s lifetime but then passes the remaining assets to the children of the deceased spouse.

Another option is to divide the estate upon the death of the first spouse, with half the estate protected for the children of the deceased spouse. The surviving spouse has access to those assets for certain needs. However, limitations may be put into place. This is applicable if the two partners bring assets of equal size to the marriage.

In some cases, the strategy to ensure that children receive the assets intended for them upon their parent’s death is to leave them to the children outside of the trust, passing them directly by naming the children as designated beneficiaries on select accounts and/or life insurance policies.

If the children are minors, creating a separate trust may be an optimal means of protecting their inheritance.

A premarital agreement is also used to clarify the rights and responsibilities of each spouse during the marriage and can also be used to specify the children’s living situation and expenses and require assets to be used to maintain their standard of living.  Executed before marriage, a premarital agreement clarifies the financial rights of each spouse, in the event of divorce or death. This is especially useful, when there is a disparity in wealth or age between the couple. Read more about premarital agreements in our article, Does a Prenup Make Sense?

With mindful and comprehensive estate planning, couples can leave a financial legacy for all of their children, while still providing for surviving spouses.  Furthermore, for most families, it’s a good idea to talk openly about estate plans, rather than waiting until one of the spouses has passed and explaining to the biological and stepchildren how the assets are being distributed. Discussing the estate plan before anyone dies, at the very least gives everyone a chance to voice their opinions, even if no changes to the spouse’s plans are made.

If the parents are truly invested in keeping their children together as a family, it is worth the effort to create an estate plan that cares for the spouses and all of the children. Schedule a free call with White Plains Estate Planning Attorney David Parker who can create a plan to accomplish your goals for protecting inheritances for the entire blended family.

Reference: The Record Courier (March 12, 2023) “Estate Planning for Blended Families”