Old Problems, New Solutions: Estate Planning For Non-Traditional Families. Part 2-Planning for Blended Families

Once upon a time, a lovely lady was bringing up three equally love girls.  At the same time, there was a man with three boys of his own, four men living all together.  One day, the lady met the fella and the rest became television history.

As The Brady Bunch reminds us, the concept of a blended family has been well known for decades now.  A family created by a couple bringing children from a previous marriage have specific issues that a traditional family will not have to deal with.  In the context of estate planning, a failure to consider the complexity of these issues and how a family resolves them can cause many problems both during and after the couple’s lifetime together.

The key considerations that a blended family must consider when preparing an estate plan include the following, namely:

1. Guardianship of minor children-One of the more complicated issues related to blended families is what happens to a child if their biological parent predeceases their stepparent.  If the child’s other biological parent is still living, they will likely be named as the successor guardian. This may uproot the child from their current homes and may not be what the child prefers.

In some circumstances, the relationship between the former spouses may be so negative that the stepparent may be named as the successor guardian.  This may lead to a dispute over guardianship that will ultimately decided by the Surrogate’s Court.  To avoid this contentious form of litigation, it is suggested that issues of guardianship be coordinated with both biological parents and the stepparent that the children live with.

2. Inheritance-Determining who will inherit your assets becomes more complicated when an individual remarries.  An individual must be aware of the rights (and lack thereof) of their new spouse, former spouse, biological children and stepchildren.

In some circumstances, a spouse in a blended family will have come to the marriage with significant wealth.  Some may have continuing support obligations to their former spouses.  Others may enter into a prenuptial agreement with their current spouse outlining what, if any, inheritance rights they will be entitled to.  Without a prenuptial agreement or a last will and testament, the new spouse will be entitled to fifty percent of their spouse’s estate as their statutory marital share.  As an alternative, couples should prepare wills which outline what inheritance rights, if any, the surviving spouse will receive.

If either spouse had previously prepared a will or executed any beneficiary designations, it is essential that these documents and designations be updated to remove the former spouse as a beneficiary.

Children also pose a potential planning problem.  New York intestacy law and most wills do not provide for children that are not biologically related to a parent.  For stepchildren, this could potentially leave them without an inheritance if their biological parent passes before their stepparent.  Careful drafting and consideration should be taken to ensure all children are cared for in some manner.

3. Estate Taxes-As mentioned above, spouses in a blended family will often come into a marriage with preexisting wealth.  It may be a spouse’s desire to use their wealth created before the new marriage to benefit their children when they die.  However, when an estate tax may be due at the federal or state level, it may beneficial to leave assets to the surviving spouse to take advantage of the marital deduction for estate tax.

The use of a marital trust called a qualified terminable interest trust, or QTIP trust, can satisfy both goals.  Under the terms of this type of trust, the surviving spouse receives all of the income of the trust.  If that is insufficient, the surviving spouse may also be given a “5 and 5 power” to take the greater of (a) $5,000 or (b) 5% of the trust principal out every year.  The majority of the trust principal is preserved for the deceased spouse’s children and the entire trust principal avoids estate tax until the surviving spouse passes.

Blended families have become a common and widely accepted type of family structure.  With that said, there are key differences in the estate planning needs, goals and potential problems of a blended family will face.  Families and planners alike must be aware of these differences in order to achieve a positive result.

For more information about estate planning for blended families, please contact info@levyestatelaw.com.


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