The Brady Bunch: Estate Planning for Blended Families04/06/2016
Many of us remember the popular show “The Brady Bunch,” which comically chronicled the life of Carol, who had three daughters, and Mike, who had three sons, after they got married and brought their families together as one. You may recall many episodes with fights over the use of the bathroom – one bathroom, six kids – you can imagine the battles that took place. When you are blessed to be in a second marriage or a relationship in which both partners have children, estate planning can be even tougher; your children may be fighting over much more than the use of a bathroom!
Blended families – families consisting of a couple and their children from their current and all previous relationships – are becoming increasingly more common. Divorce is one, but certainly not the only reason. Some people lose a spouse very young to illness or accident, and on the other side of the spectrum, people are living longer and desire companionship and the ability to love again. As you can imagine, traditional estate planning does not transfer well to these types of family arrangements. A customized estate plan, along with strict adherence to the separate ownership of assets where intended is necessary to ensure the right parties receive what the parents intend to give.
It’s not simply traditional planning that can be problematic; even more contemporary, advanced planning strategies must be well-designed to ensure that pitfalls are avoided. Too often, I have seen and heard of cases where “they thought the estate plan said….” For example, a common strategy in someone’s will or trust is to put assets, up to the federal estate tax exemption amount, into a Family Trust upon the death of the first spouse to die. This Family Trust is drafted such that the surviving spouse can have all the trust income he or she needs for life, as well as the principal needed for health, education, maintenance or support. (Please understand that I am simplifying greatly for purposes of this article; much more customization happens based on many factors). Then upon the surviving spouse’s death, a common intent for that Family Trust is to distribute equally, or in some pro-rated amount, among all of the children.
Here’s one area where proper planning becomes essential: if the financial accounts are jointly owned by husband and wife, the entire account will go to the surviving spouse and not into the Family Trust. At that point, the surviving spouse is free to do whatever he or she wants with those funds, which could include excluding the deceased spouse’s children from inheriting when the survivor passes. They may also decide to donate it all to charity, spend it all, or even leave those funds to a new spouse (perhaps unknowingly, more to come on that below). Some couples are fine to leave it completely up to the surviving spouse; others prefer a clear plan of use and asset distribution.
In blended family situations, it’s important to look at the individual family circumstances and focus on the goals rather than particular relationship designations. Each family’s goals will be different; estate plans should be, and can be, customized to achieve those goals for that family. For instance, in a blended family where there are older children from previous marriages, as well as younger children from the current marriage, an estate plan may have provisions to equalize the age difference. Perhaps the estate would not be ultimately distributed in equal parts until the youngest child has had an opportunity to attend college if parents had paid for older children to attend. Sometimes the younger children have more needs and sometimes the older children have already received financial assistance during their lives. Thus a simple estate plan that includes provisions “in equal shares for all children,” could prove to be quite unfair if you still have minor children and adult children.
Some families have “his/her” children; some have “his/her/ours” – there are many combinations. I had one male client tell me with loving conviction: “In our family we have stairs; we don’t have any ‘steps’. All of her children are my children.” In their estate plan, they wanted all of the children treated the same, receiving an equal amount from both parents. A traditional estate planning definition of “children” however would not have achieved that result.
In another blended family situation on which I counseled, the children were not all treated the same. In fact, the father was a farmer, and he wanted to make sure that his farm would be available for his step-son who had farmed with him for many years. He made sure that his estate plan included clear provisions regarding land rental rates such that his step-son would not need to negotiate rental terms with his biological children. He wanted his children to receive a fair rental rate on the land, but it was equally important to him to ensure that his step-son could continue his farming legacy.
Another estate planning consideration with blended families is the need for a prenuptial agreement. Often people associate prenuptial agreements only with divorce when in fact they serve an important more general role of protecting an individual’s right to distribute his or her pre-marital property in the manner that he or she wants. State law provides that spouses have certain rights in each other’s property. Absent a prenuptial agreement, even in the case of a second marriage much later in life, spouses have a better right to inherit wealth accumulated prior to the marriage than children from a previous marriage would have. A prenuptial agreement removes that statutory right and allows each spouse to control to whom their property is transferred. These agreements can prove vital in protecting assets for separate children. Postnuptial agreements (contracts entered after the marriage) can also be created for this purpose in some states as well.
Blended families can represent the beauty of new beginnings, but they are not created without thoughtful consideration and effort (come to think of it, what family is?). Estate planning for blended families also requires careful consideration by an estate planning attorney to ensure long-term family goals are met and the particular circumstances of the individual family members are addressed. You, along with a qualified estate planning attorney, can design the plan that fits you and your family. I am sure you will be a better architect than Mike Brady’s bunch – 1 bathroom, 6 kids – you are just asking for trouble. Don’t ask for trouble in your estate plan; do the work to make it right for you and for those who come after you.
Source: Carolyn Thompson, Thompson Law