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Estate Planning for Blended Families

Sep 28, 2015 01:37PM ● Published by Danel DuRee

by Daniel DuRee

            The issues involved in estate planning are both complicated and emotionally charged for any family. Things become even more difficult when a husband or wife has children from a previous relationship. The decisions become more important because of the possibility that children from a previous relationship may not end up with anything if the surviving spouse spends all of the assets or changes the estate plan. If the children are strictly provided for, there is also a possibility that the surviving spouse may not have enough money to support him or herself.

            This is a very common issue and can be dealt with in a couple of ways. With proper legal planning and communication, many potential problems can be mitigated. I will discuss the three most common ways of dealing with estate planning for a blended family. We will assume the family is using a revocable trust for probate avoidance.

Leave all assets in control of the surviving spouse

            A married couple can create a jointly settled revocable trust with agreed upon beneficiaries and spouses acting as co-trustees. In its most simple form, when one spouse dies, the other spouse is sole trustee and the trust is still fully amendable and revocable by the surviving spouse. What this means is that even if the children of the deceased spouse were initial beneficiaries, the surviving spouse has the power to amend the trust and remove them as beneficiaries. It is not uncommon for a surviving spouse to amend a trust years after the death of the first spouse because their relationship with some of the initial beneficiaries (e.g., the deceased spouse’s children) has changed over time. The other potential issue arises when a surviving spouse enters a new relationship and amends the trust in favor of their new significant other.

Split the Trust at the Death of the First Spouse

            Another option is to split the trust in half at the death of the first spouse with half of the trust being irrevocable and earmarked for the deceased spouse’s children. The trust can be drafted so that the surviving spouse has access to all of the income but none of the principal, or all of the income and a certain percentage of the principal per year. It can also be written so that the surviving spouse only has access to the deceased spouse’s half after they have spent their own half. Of course the danger with this scheme is that the surviving spouse needs the assets to care for him or herself and is unable to access them.

Give the Children Their Share at the Death of Their Parent

            The easiest way to deal with estate planning for a mixed family, if practical, is to simply leave a certain amount of assets to the children when their parent dies. That way, the children are provided for and the surviving spouse has control over the remainder of the assets to support him or herself. Although the children may not end up with as much as under the split trust scenario, they will receive the money earlier and the surviving spouse will be better protected.

            There are numerous other permutations of a trust that can combine different aspects of these three approaches. If you have any further questions, don’t hesitate to call and I will be happy to discuss this and any other estate planning issues in further depth.

 Daniel L. DuRee is a third generation resident of Contra Costa County and a licensed attorney practicing in Walnut Creek. He can be reached at (925) 210-1400 or visit www.DuReeLaw.com. 

Home+Finance October 2015 DuRee Law Estate Planning for Blended Families
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