Protecting Wealth And Creating Legacies

Top 5 Challenges In Estate Planning For Blended Families

On Behalf of | May 23, 2016 | Firm News |

Blended families (those where at least one spouse has children from a prior relationship) face challenges in creating estate plans that balance the competing needs and desires of family members.  This guide explains the top challenges blended families face.

1.  Competing Interests of Spouse and Children

In a blended family, the interests of a spouse may conflict with the interests of the stepchildren.  Often an individual intends to provide for both his or her spouse and his or her children in a manner that is “fair.”  A surviving spouse may need lifetime income and access to principal to cover his or her day-to-day needs.  The stepchildren may wish to limit the surviving spouse’s expenditures of income and principal to secure or increase their own inheritance.  Where the children view the family’s wealth as originating with the natural parent (rather than the stepparent), the children may also believe that the inheritance should stay in the family.  Where the surviving spouse has children from a prior relationship, he or she may wish to protect separately acquired assets for the benefit of his or her children.

2.  The Elective Share

When individuals marry without a prenuptial agreement, state law defines the rights of the surviving spouse to inherit from the predeceased spouse.  The amount a surviving spouse is entitled to receive varies by state and depends on several different factors.  If a surviving spouse receives less than this statutory amount at the death of his or her spouse, then he or she can elect to receive a share of the deceased spouse’s estate in lieu of the bequest in the decedent’s will.  This process is sometimes known as “electing against the will.”  Even if the spouses agreed that each would provide only for his or her children from a prior marriage – to the exclusion of the surviving spouse – the surviving spouse is not bound by that decision absent a valid, binding prenuptial agreement that addresses rights at death.

3.  Post Death Changes

Even in close families, problems can arise when the surviving spouse makes changes after the deceased spouse’s death.  Those problems can be even greater in blended families where the changes may be in favor of the surviving spouse’s children to the detriment of the deceased spouse’s children.  Clients who wish to limit the survivor’s ability to make changes should seek out an estate planning attorney who is well-versed in irrevocable trusts.

4.  Fiduciary Selection

Selecting the party or parties to manage assets at incapacity or death is always a challenge.  Clients typically select family members or close friends to assist in these matters.  Clients in blended families face additional difficulty in selecting fiduciaries because the family members they may wish to select may have conflicts of interest that will make it difficult for them to fulfill their duties.  Consider the situation where a client wishes to create a trust for his wife, with the assets passing to his daughter at the wife’s death.  If the client names both his wife and his daughter as Co-Trustees, then the wife and daughter must agree on expenditures.  Too often the interests of the income beneficiary (wife) conflict with the interests of the remainder beneficiary (the daughter).  The result can be expensive litigation that might have been avoided by selecting a neutral fiduciary.

5.  Properly Funding the Estate Plan

Even the most well-drafted estate plan only works if the individual owns assets that will pass under those documents.  When a husband and wife own assets jointly with rights of survivorship, the assets pass to the surviving spouse by operation of law – even if the deceased spouse’s estate plan provided otherwise.  If, for example, a husband’s Will provided that one-half of his assets are to be distributed to wife and the other one-half to his children, only those assets the husband owned in his own name (without any co-owner or beneficiary designation) would actually pass under the Will.  Joint ownership and beneficiary designations could result in a division of assets remarkably different than what the husband intended.