Blended, or mixed, families have always been around, but in the modern era, they are extremely common. A case study on blended families has been estimated that 35% of all married couples (and 40% of all married couples with children) involve a partner who has a child from a previous relationship.
Blended family relationships have a tendency to be rocky. There are often all sorts of difficult emotions and a degree of mutual suspicion that does not tend to occur in families bonded by blood relations. Just consider the prevalence of the “wicked stepmother” archetype in fairy tales (although in our experience, a stepfather or stepchildren can be just as wicked).
While many blended family relationships are not quite so dire, the statistics are not encouraging: studies show that around 60-73% of blended families fail.
Now, estate planning – that is to say, arranging for what will occur to your assets after your death or incapacitation – is also one of the most difficult things that you can do, and involves dealing with all sorts of questions you would probably rather not think about.
Combine that with the issues surrounding a blended family, and you can imagine how complicated matters may become.
Inheritance battles are extremely frequent in even traditional families; the grief of losing a family member and the subsequent division of assets tends to bring long-simmering family tensions to the surface. In blended families, this is even more likely, and stepparents and stepchildren are especially prone to getting in fights.
If you are a parent or stepparent in a blended family, then, the responsibility is on you to engage in thorough and rigorous planning to avert such conflicts. Fortunately, if you know what you are doing, a good estate plan can make things much easier.
Basic Tips for Estate Planning with Step Children
Tip #1: Figure Out Your Goals
Before doing any estate planning, you need to figure out exactly what you want to do. The question is not as simple as you may think.
With blended family estate planning, you have to consider all the issues that you would have to consider in an ordinary estate plan, plus a few special ones that only matter to blended families.
These issues include:
- Inheritance. In a traditional family, if you die before your spouse, you leave your assets to your spouse, on the assumption that they will end up with your children when he or she dies. But if your spouse is not the parent of your children, this may not work so well. You may choose to give all of your assets to your children, but this isn’t an ideal solution, either: you will probably want to provide for your spouse as well, and your children may not be old enough to inherit just yet.
- Incapacitation. What should happen to you if you are alive but incapacitated? This is an important issue for all estate planners, but particularly so if you are in a blended family. Your spouse and children will often both be vying for the right to make your decisions for you, and you should choose one party to be given power of attorney.
- Guardianship. If your children are still minors, you will have to consider the issue of who will take care of them if you die. Should it be their biological parent? Or should it be your current spouse, their stepparent? There is no firm answer to this question, and a lot will depend on the specifics of your situation and who you trust to raise your children.
These are just a few of the complicated issues raised by blended family estate planning. It is best to think about these issues alone for a little while before broaching them with your spouse. Ask yourself, “What do I want? What will be best for me and my children?”
Tip #2: Communicate!
In order to develop any estate plan, you must ensure that you and your spouse are on the same page. This is especially true of a blended family estate plan.
It may be difficult to broach these sensitive issues with your husband or wife, but the costs of not doing so can be much greater. Be willing to listen and take their input into account, but also remember that you have a set of goals of your own and do not acquiesce to whatever your partner wants. (This is why thinking about these issues on your own beforehand is so important.)
It is important to communicate clearly with your children as well. No matter how good of an estate plan you craft, conflicts may erupt after your death if your children are uncertain of the details of the plan and feel that they are getting a raw deal (even if this isn’t true).
This is particularly crucial since in many plans, your children will not get the assets immediately. This may lead them to feel that their stepparent is shortchanging them. You should make sure your children are well-informed and that the process is reasonably transparent.
Tip #3: Be Especially Careful If You Are a Man
Both men and women need to put a lot of thought into estate planning in blended families, but the issue is especially salient for men.
Men live shorter lives than women on average, and men tend to marry women who are younger than them. This is particularly the case with wealthier men on their second marriages, who often choose to marry much younger.
As a result, it is probable (although by no means certain) that conflicts in a blended family will occur between the wife and her stepchildren, rather than the other way around. That is why men should be especially rigorous in their second family estate planning, particularly if their wife is younger than them.
Tip #4: Get a Prenup (Or a Postnup)
The best time to hash out estate planning conflicts was before you got married; the second-best time is today.
A prenuptial agreement, in addition to its other benefits, can address the topic of how inheritance will be handled upon the death of one spouse. In writing a prenuptial agreement, you would do well to elicit a guarantee from your spouse that they will not contest your estate plan (or you theirs). You can also specify how much your spouse will be able to receive.
If you’re already married, then it is not too late to do this. A postnuptial agreement can do much of what a prenup can do. And if you are not married to your partner, you can draft a domestic partnership agreement which will serve the same purpose.
Tip #5: Give Gifts While You Are Alive
If you are concerned about what will happen after you die, an easy way to get around this will be to give gifts to your children and other beneficiaries while you are alive. This will give you direct control over your funds and not leave anything to chance or the caprice of an executor or trustee.
Of course, if you give large gifts, then you will run into the federal gift tax. But it is not hard to work around this: the lifetime exemption for the gift tax is currently $11,180,000, and if you give less than $15,000 to any one person in a year, you do not even have to report it to the federal government as going towards your lifetime exemption (and that’s $15,000 per person per year, not in total gifts; you can give as many different people gifts of up to $15,000 as you want).
Unless you are dealing with a huge estate, the gift tax will probably not significantly prevent you from using this particular strategy.
Tip #6: Remove Your Ex-Spouse’s Name from Everything
If you are extremely generous and if your divorce with your first spouse was an amicable one, then you may want to provide for them in your estate plan.
More likely, however, you will not. That is why you must thoroughly update your estate plan at the beginning of your second marriage and remove your ex-spouse’s name from all of the trusts, insurance policies, and retirements accounts on which they are a trustee, beneficiary, or joint owner.
This is particularly important with bank accounts, because the joint owners of an account will receive full control of the account automatically if the other joint owner dies. In some cases, as the result of an earlier divorce settlement, you may not be able to fully remove them from some of your accounts, but you should still do what you can.
Failing to do this is one of the simplest but costliest mistakes that people make.
Major Concerns in Blended Family Estate Planning
Different Types of Trusts
Trusts are generally more complicated than wills. They are difficult to create, but they allow you to prepare for more eventualities than a will does. That is why, in a blended family, a trust is frequently (although not always) preferable to a will.
A good trust will solve the above-mentioned problem of ensuring that your children receive your assets after you die. If you are concerned that your spouse will not provide for your biological children, but they are still too young to get their inheritance now, then you can create a trust which will allow your spouse access to the money but stipulate that when they die, the remainder will go to your children.
You should probably place some reasonable limits on your spouse’s access to the money, so they do not use it all up. If you want, you can create an irrevocable trust, which will allow them to receive the assets according to a set of prearranged terms.
There are even a couple of options for dividing your trust:
- An AB trust divides your trust into two parts, with one part going directly to your children (perhaps once they reach a certain age) and the other part going to your spouse with the remainder going to your children.
- An ABC trust is even more complicated, and divides your trust into three parts, with the first going directly to your spouse, the second directly to your children, and the third to your spouse with the remainder going to your children.
Dividing your trust is especially useful in cases where your spouse is a lot younger than you and your children do not want to wait decades for their stepparent to die so they can get access to their inheritance.
Remember, you have no control over what happens after you die, and so you should act on the assumption that your children will get no more than what you specifically laid out for them.
Some people are afraid to not give their spouse full control, because they feel it would be a sign of mistrust. In fact, there is nothing to be ashamed of here: you have an obligation to do what is right for your children, and a spouse with no ill intention will not oppose your doing so.
At the same time, however, you should be wary of giving your children full control and the power to shortchange your spouse. The children are not necessarily good and the stepparent not necessarily evil: bad faith and unethical conduct can go both ways.
This is why, when it comes to trusts for blended families, it is particularly advisable to have a third-party trustee. This may be an individual who is a friend of the family with good intentions towards everyone but no direct stake, or else another entity such as a bank or attorney who can serve as a professional trustee. If you feel that a third party will be too impersonal, you can have them share the duties with a family member; if done properly, this will give you the best of both worlds.
California is a community property state, which means that property acquired in a marriage will be considered the equal property of both spouses and divided equally in the event of a divorce.
All property acquired before a marriage, however, is the personal property of each individual, unless you and your spouse mutually agree to change an object of personal property into one of community property, or vice versa.
The question, therefore, is how much you should comingle your assets with your spouse. While it may be tempting to do so for various reasons, keeping most of your personal property will put you in a stronger position when it comes to leaving assets for your children.
Objects of Sentimental Value
Estate planning is not just about methodically dividing wealth. In every family, there are heirlooms and objects which may not be of great monetary value but are of significant sentimental value to the members of the family.
Believe it or not, some of the most bitter and acrimonious fights, particularly in blended families, will be over these items. This is why it is important to specify these items in your estate plan, and leave no doubt as to who will receive them.
Fair versus Right
A lot of people who are in the process of estate planning, but particularly in blended families, feel a duty to be fair to everyone.
If we can offer a piece of advice: you are not obligated to do what is fair, but to do what is right. You have worked hard for your money, and your job is not to treat everyone equally, but to give your money and other assets in accordance with your values and what you feel will be best.
This applies, not just to deciding between your spouse and children, but to deciding between your children and stepchildren as well. Listen to advice, but don’t necessarily heed it if it goes against what you sincerely believe is right.
Doing what is right will vary from situation to situation. But as an estate planner in a blended family, you will need to make difficult decisions, and it is crucial that you have the wherewithal to make them.