Estate Planning For Blended Families

by KOHLER LEGACY LAW GROUP

May 16, 2024

As part of our estate planning practice, we work with many “blended” families.  These are married couples with children from prior marriages.  In light of what we have seen over the years if you are embarking on an estate plan for your own blended family, we offer the following pointers for your consideration.

Potential Deterioration of the Relationship

Even if everyone appears to get along now, do not assume that your children from a prior marriage will continue to get along with your current spouse or their stepsiblings after you die.  Despite everybody’s best intentions, these relationships frequently deteriorate after the uniting family member has passed.  Do your blended family a favor and assume they may not have an easy time getting along after you are gone.

An Irrevocable Trust to Benefit Your Surviving Spouse

Consider directing assets to an irrevocable trust for your surviving spouse’s lifetime benefit rather than giving those assets outright to your spouse upon your death.  An outright distribution gives your spouse full control over the use of the assets during your spouse’s remaining lifetime.  It also allows your spouse to ultimately determine the beneficiaries of the trust upon death.  This understandably could create a huge temptation for the survivor to favor himself and his children.  An alternative is to direct those assets instead to an irrevocable trust at your death. The trust can be drafted so that your surviving spouse will benefit from the assets during his or her remaining lifetime, as needed, but your spouse will not have unfettered access, at least to the principal.  Furthermore, depending on how the trust is drafted, the balance of the irrevocable trust will be distributed to your children and/or grandchildren upon your spouse’s subsequent death. If you do choose to leave assets to your spouse in an irrevocable trust, think carefully about granting your spouse a “power of appointment,” which could allow your spouse to adjust the distribution among the recipients of the trust balance (i.e., your children and/or grandchildren) on your spouse’s death. While this allows greater flexibility for the surviving spouse to react to new facts and situations as they develop after your death, giving your spouse this power can make it appear that you do not trust your children as much as your spouse (which may be true, but is best kept to yourself), and worse it may allow your spouse to treat your children in a manner for which you did not intend.

A Professional Trustee

Consider designating a professional trustee to manage your estate after your death.  Using a professional trustee goes a long way toward avoiding potential conflicts between a surviving spouse and his or her stepchildren.  Having a stepparent or stepchild act as trustee of a trust for the surviving spouse almost guarantees disagreement and conflict over financial issues.  Having both the stepparent and a stepchild act together as trustees can be downright incendiary and lead to deadlock.  Let a professional trustee steer your blended family through potentially tumultuous waters.

Items of Sentimental Value

Consider leaving certain personal items with sentimental value (jewelry, art, keepsakes, mementos, and heirlooms) to your children when you die rather than making them wait until their stepparent dies.  This will help your children feel loved and appreciated, lessening the likelihood that they will develop negative feelings toward the surviving stepparent.

Immediate Financial Gifts

If you can afford to and if you predecease your spouse, consider making financial gifts to your children and perhaps grandchildren immediately upon your death.  Making your children wait until their stepparent dies to inherit anything of significant value can be another recipe for conflict and bitter feelings.

Estate Tax Portability Election

Consider the pros and cons of allowing your surviving spouse to take advantage of the estate tax portability election at your death.  This election allows your surviving spouse to take your unused estate tax exemption and to use it to shelter gifts and inheritances passing to his or her own children from tax.  In the end, this could leave your children carrying more of the estate tax burden than you expected or intended.  Careful consideration should be taken as you and your estate planning attorney think through these more complicated tax issues.

These pointers are not for every blended family.  There are many high-functioning blended families that are not at serious risk of falling prey to the tensions and problems highlighted in this article.  That said, we find that many couples can be a bit pollyannic.  We suggest that instead of avoiding uncomfortable issues, you keep these simple pointers in mind and take appropriate steps to ensure that relationships between your “blended” family members remain harmonious after you are gone.

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