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Cape Cod Estate Planning Blog

Friday, May 1, 2015

Congratulations, you’ve remarried! Let’s talk estate planning!

Getting remarried is an exciting, but sometimes stressful, event. In today’s society, with blended families on the rise, the joy of a new marriage may also be accompanied by concerns about how to provide fairly for all members of the new family. Proper estate planning can help blended families address any issues that may arise.

Estate planning for blended families involves looking at numerous factors: 

There may be children from past marriages involved. 

  • Couples may bring an unequal number of children into the marriage, as well as unequal assets.
  • A spouse may want to ensure that his or her spouse is provided for at death, but may be afraid to leave everything to that spouse out of fear that at the death of the second spouse, that spouse will leave everything to his or her biological children.
  • A spouse may be torn as to who should make medical or financial decisions if he or she becomes incapacitated - the 2nd spouse or children from the prior marriage?

When young children are brought into the picture, planning can get even more complicated:

  • The non-biological parent may raise those children, but for estate planning purposes, unless formally adopted, those children are not considered “the children of” the non-biological parent.
  • Therefore, if the non-biological parent dies without a Will, those children will not inherit from their stepparent.

Fortunately, there are many options for estate planning for blended families that will treat everyone fairly. However, there are always pros and cons to consider. Two options many families are interested in discussing are a Traditional Will based plan, and a Trust based plan:

Traditional Will plan

Often parents of blended families look first to a Traditional Will plan in which half of everything is left to the husband’s children, and half is left to the wife’s children.

  • On paper, this may seem like a very fair and equitable division of assets. 
  • However, after the death of the first spouse, the surviving spouse could change his or her Will and cut the stepchildren out of the estate plan.
  • Furthermore, owning assets jointly or distributing through a beneficiary designation (i.e. life insurance or IRA accounts), may totally nullify or contradict what the Will says.

A second type of Traditional Will plan involves leaving a certain amount of money to children and stepchildren at the death of the first spouse.

  • The respective children and stepchildren will inherit upon the first spouse’s death, regardless of which parent dies first.
  • It still does not guarantee, though, that the surviving spouse does not change his or her own Will later on and keep his or her stepchildren from inheriting anything else.

 

Trust(s) plan

Under one type of multiple trust plan, assets are usually held in trust by each respective parent.

  • Upon the death of the first spouse, the surviving spouse has the right to use the assets in the deceased spouse’s trust for support, with certain limits, such as rights to income or limited use of the trust principal for living expenses. The surviving spouse will not be able to change the beneficiaries of the trust, and hence his or her stepchildren could not be disinherited from the biological parent’s trust.
  • The drawback to this plan, is that the surviving spouse could still disinherit the stepchildren from his or her own living trust.

 

Another type of plan is a single joint trust plan in which all the assets are combined.

  • In this type of plan, at the death of the first spouse, the surviving spouse could still be provided for, but could not alter the contingent beneficiaries (the children and stepchildren).
  • This type of plan, though, has other issues to consider, especially in situations where couples entered a marriage with unequal assets, or with assets that have been in the family for generations.

 

For each of these plans, there is the consideration of how assets are held or distributed after death. For example, some couples may decide to leave a certain amount of money to the children at the death of the first spouse, such as through a life insurance policy payable to the children. This way, children will not have to wait for the death of the stepparent in order to inherit. Such an option may work well in situations when the children are mature adults, and there is sufficient money for the surviving spouse to support himself or herself without relying on the extra funds that are inherited by the children.  However, this type of planning should be discussed thoroughly in the context of the overall estate plan.

 

Customized Estate Planning

As you can see, estate planning with blended families can be complex. Each situation is unique, so no two plans for blended families is ever exactly the same.

An experienced estate planning attorney will not customize a plan based on individual needs, but will also complete the funding of the plan. Funding is the process by which the ownership and/or beneficiaries of assets are looked at, and possibly updated, to ensure they meet your estate planning objectives. For example the attorney will help you:

  • Consider whether to change beneficiary designations on qualified or nonqualified assets
  • Understand potential tax benefits and consequences of your plan
  • Offer customized guidance on how to insure your documents continue to provide for your family, according to your wishes, after you are no longer with them.

With so many factors to consider, a good estate planning attorney can help you to prepare a plan that honors your new family while avoiding many potential future issues. Now that’s cause for a celebration!

 

 

 

 




Case Estate & Elder Law, PC assists clients in Barnstable County, Dukes County, Nantucket County, and Plymouth County MA; areas include but are not limited to Cape Cod, Martha's Vineyard, Nantucket, and Plymouth.



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