By: Olivia R. Holcombe-Volke, J.D. — Partner
Estate planning for blended families (meaning, in this context, couples in second, third, or later marriages, where one or both spouses have children from outside the current marriage), can present unique challenges. Often, clients think that their preferences are simple, such as “I want to leave everything to my surviving spouse, and anything remaining after my surviving spouse dies will go to my own children.” However, even when the goals seem simple and straightforward, there are additional factors that should be taken into account in order to ensure that no intended beneficiary is left shortchanged by the vagaries of the law, human behavior, and unanticipated circumstances. In cases of second or later marriages and/or children of one but not both spouses, the planning is rarely “simple.” That being said, it is not impossible to accomplish most client goals in a blended family; it merely requires a bit more attention to detail in the planning.
What are some of the risks? The following are just a few:
- Spouse A leaves all assets to Spouse B, with any remaining at death of Spouse B to go to Spouse A’s children. Spouse A dies. Spouse B uses up all assets of Spouse A, while protecting/preserving his own assets. At death of Spouse B, there are no remaining assets to go to Spouse A’s children; all of Spouse B’s assets go to his own children.
- Same estate plan as above. Spouse A names her adult child as trustee and financial attorney-in-fact, and authorizes distributions during Spouse A’s incapacity to Spouse A, Spouse B, and Spouse A’s children. Adult child, concerned that all assets will be spent by Spouse B following Spouse A’s death, such that Spouse A’s children will not inherit anything, distributes significant assets to himself during Spouse A’s incapacity, such that at death of Spouse A, no assets remain to go to Spouse B.
- Spouse A and Spouse B intend that all assets will go to all of their children (including children of both and/ or only one of them) after the death of the second spouse to die, but fail to specify what is meant by “my descendants” in their estate planning documents. Accordingly, at the death of the second spouse to die, all assets go only to that spouse’s children and grandchildren, and not the children of the first spouse to die.
The common thread in estate planning for blended families is in the details – or lack thereof. And the risks stretch beyond the unintended consequences (whether of benefits or harm) set forth above – there is also a much greater likelihood of disagreement, and worse, litigation, resulting from ambiguity and uncertainty in the terms of an estate plan. As many of us know, an unfortunate truth of most humans is that when money is on the line, trust, understanding, and forgiveness tend to be the first personality traits left at the door. While it is impossible to address every potential issue and guarantee that no disagreements or unintended consequences will occur, the greater the detail that goes into thinking about and drafting an estate plan, the greater the likelihood of a wholly positive, wholly intended outcome. Details to consider include:
- Incapacity planning – who is being given the authority to access, manage, and distribute assets; what is their level of discretion; and to whom are they authorized to distribute?
- Post death planning – what is the timing for distribution of certain assets – is it at the death of Spouse A, or only after the deaths of both Spouse A and Spouse B?
- Who are the beneficiaries – to whom does the term “descendants” refer?
- Are there separately owned assets that can be designated directly to or for separate beneficiaries?
- Is it necessary and/or worthwhile to hold the assets of Spouse A’s assets in trust for the benefit of Spouse B, to ensure the ultimate distribution to Spouse A’s intended beneficiaries?
- Who will be the trustee or financial agent, and what do they stand to gain or lose by taking certain allowable actions?
The starting point for successful estate planning for blended families is to engage in a thoughtful, honest, and thorough discussion with your estate planning attorney, your spouse, and your children or other intended beneficiaries. By discussing priorities that are known, and potentially discovering risks and, perhaps, other priorities that were previously unknown, the details vital to accomplishing the goals of the estate plan will become clear. Particularly if each spouse has a different preference for the ultimate disposition of their respective estates, it is imperative to address this in the planning stage, rather than trusting that it will be taken care of, or leaving it to be taken care of, after the first spouse dies.