ESTATE PLANNING FOR THE BLENDED FAMILY
by Attorney George P. Guertin
An ElderCare Matters Partner
Little attention has been paid to the estate planning issues confronting blended families. A blended family or step family is often comprised of children who are natural to only one parent, as well as children that are natural to both parents. Blended families face many issues that the traditional “nuclear” family does not face. These issues include disinheriting ex-spouses, protecting children from the previous marriage, providing for the new spouse, providing for the children of the new marriage, and minimizing estate taxation.
Without proper legal planning, your ex-spouse, as surviving parent/Guardian, would likely be appointed by the Probate Court to manage the inheritance you leave to your children. That’s right, your ex-spouse… managing your money. To make matters worse; what if your children later predeceased your ex-spouse, and were single and childless at that time? Who would inherit your assets then? That is right… your ex-spouse, as the next-of-kin of your children, would inherit your money. This can be avoided through the use of a Will that has provisions to set up a Testamentary Trust for the benefit of your children after you pass.
A Testamentary Trust is a Trust that is created by a Will and only operative after you pass away and the Will is admitted to probate. You can name someone you trust to be the Trustee of this Trust, who will make disbursements to your children for their health, education, and support. In your Will you can also specifically disinherit your ex-spouse to make sure under no circumstances are they to get anything from your estate. Furthermore, in your Last Will and Testament or a Trust you can make provisions to protect your new spouse.
In the absence of a Prenuptial Agreement to maintain separate assets, most spouses in blended families tend to blend (combine) their wealth. However, if you predecease your new spouse, then you may forever disinherit your own children of your share of such blended wealth! Thereafter, upon the death of your new spouse, your assets may be inherited by your stepchildren, or even by your new spouse’s next spouse and their children. A Will with Trust provisions or a Revocable Living Trust can prevent this problem.
Regardless of whether children are reared in a traditional nuclear family or in a blended family, great care should be given to protect any inheritance both for them, and from them. For starters, wealth representing a lifetime of your hard work and thrift can be squandered in very short order. Dollars earned just spend differently than dollars inherited! In addition to good old fashioned squandering, an inheritance can quickly vanish through divorce, lawsuits and bankruptcies.
Aside from disinheriting your own children, blending your wealth with your new spouse may unnecessarily enrich the IRS. How? The Internal Revenue Code provides an exemption to each taxpayer for purposes of sheltering a certain dollar value from estate taxes, with marginal rates reaching nearly 50%. However, this is a “use it or lose it” exemption, and you lose it when title to your blended assets vests in your new spouse upon your death. In addition to disinheriting your own children, this mistake alone can trigger hundreds of thousands of dollars in unnecessary estate taxes. Why unnecessarily enrich the Internal Revenue Service?
Proper planning can control where your assets go, and how they are used when they get there. This is especially important when planning for blended families and their unique needs. Although blended families face unique issues, these obstacles can be overcome through proper planning.
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