Blended Families: Estate Planning Gets a Lot More Complicated

If you’re one of the millions of Americans who has divorced and remarried, you know that estate planning with your blended family gets a lot more complicated. Without a carefully crafted Will or Living Trust, your children could unintentionally be disinherited.

The stakes are higher for those who’ve remarried

There’s a lot more at stake the second or third time around. You’re older, and there’s a greater chance that you’re bringing assets into the marriage–retirement savings, life insurance policies, brokerage accounts and real estate that you want to protect. You may also want to ensure your children receive family heirlooms or mementoes that may or may not have monetary value but can be the source of family discord.

A reality check from a financial planner

Think about this one: If you’re both on a boat that goes down and you’re lost at sea, can you trust the two sides of the families to get together and carry out your wishes? If the answer is somewhere between “not sure” and “unmitigated disaster”, you need to carefully develop an estate plan that will provide for your spouse and each set of children.

What to be thinking about as you and your spouse plan for your blended family

Naming—and updating–account beneficiaries

When people remarry, it’s easy to overlook the necessity of updating the beneficiaries on retirement accounts and life insurance policies. These account designations supersede whomever you may have listed in your Trust. You can name your daughter Joan as the beneficiary of your life insurance policy in your Trust, but if you still have your ex-wife named on the policy, she’ll be the beneficiary.

When it comes to retirement accounts, your (new) spouse will most likely be the beneficiary. If you predecease that spouse, those 401(k) assets become hers–which may not include passing any money on to your kids as you may have planned. Let’s say that someone has $500,000 in a non-retirement account and adds his new wife to his account with rights to full ownership upon his death. If he wanted to leave part of that money to his kids, he didn’t do it.

Your home and the property’s title can make a big difference

Remarriage often includes a jointly owned home. Depending on how the property is titled, your wishes to have your children inherit your share of it could be upended.

In most states, including California, if a property is deeded as “joint tenancy with right of survivorship”, when one spouse dies, the property automatically belongs to the surviving spouse—regardless of what your Will states. If you own the house in “tenancy in common,” you can leave your share to someone other than your spouse. This is your chance to leave your home to your children.

Detail the distribution of items with sentimental or monetary value

If you want your children to receive specific items when you die, it’s important to be as specific as possible so there is no room for individual interpretation. These items may or may not have monetary value. When Robin Williams died, he left his $50M estate to his three kids and his Tiburon home to his current wife. Unaccounted for was the significant collection of awards, accolades and memorabilia that were in his wife’s Tiburon home. His children subsequently sued for those items, many of which had limited monetary value. Detailed estate planning minimizes this kind of family turmoil.

For young adults: A Living Trust that’s the beneficiary of a particular asset

If you want your kids to receive money but don’t want to give a young adult — or one who is a chronically poor money manager — unrestricted access to a sudden windfall, you can create a Trust to be the beneficiary. The Trust will hold assets on behalf of your beneficiary; it becomes a legal entity, as dictated by the documents creating it. The assets go into the Trust rather than directly to your heirs. You can identify the conditions under which the beneficiary will receive money.

Communication: Have that talk with your kids

Discuss your financial landscape with your blended family. Managing expectations helps avoid conflict. If you and your spouse intend to fully enjoy your retirement, it will leave less money for the family. Let them know that their inheritance will likely be significantly reduced.

Other considerations: Create a Living Trust

At California Document Preparers, our Living Trust package includes a Power of Attorney and an Advance Healthcare Directive, critical parts of long-term planning. The people you name will be responsible for making important healthcare and financial decisions for you if you become incapacitated. Think carefully about the people you name as your agents—they should be accessible, people you trust to follow your wishes, regardless of their own views. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Complexity of Blended Families Creates Need for Multiple Trusts

“Julie” came in to our Oakland office to get more information about creating a Living Trust. She and her husband headed a blended family, and theirs was a complex scenario. Wanting to avoid going to an attorney, she was hoping we could help her. She and her husband, “Jerry”, had both been previously married, and each brought children and assets to their relationship.

Julie and Jerry owned two properties together, and they agreed that these properties would go to Jerry if she passed away first; after he died, they would be divided among their collective five children. Julie also owned four properties that were in her name only, and she wanted these properties to go directly to her three children when she died--not to Jerry or his two children.

After carefully reviewing her estate and options, she decided to prepare two Trusts:

• A Joint Trust would be created to hold their community assets, including the two properties that Julie and Jerry owned together. They agreed that the surviving spouse would inherit these assets. After he the surviving spouse died, these assets, including the properties, would be equally distributed among the couple’s five children.
• An individual Trust would be created just for those four properties Julie owned as her separate property; upon her death they would be distributed among Julie’s three children only.

This was a clever way to separate assets, allowing for different distribution strategies

• We would help Julie and Jerry transfer title of their jointly owned properties into the Joint Trust, and these assets would go to the surviving spouse. After the death of the survivor, these would go to the beneficiaries they named in their Joint Trust.
• We would also help Julie transfer title of her separate properties to her Individual Trust. Since their Joint Trust can be amended by the surviving party, Julie took the extra precaution of segregating these properties because her Individual Trust becomes irrevocable and unamendable after she dies. Julie wanted to avoid any confusion about wanting to distribute the four separate properties among her three biological children.

While Julie and Jerry could have stated in the Joint Trust that these properties were to be given upon Julie’s death (rather than after the death of both of them), sometimes spouses worry that circumstances may change after their deaths and their wishes won’t be followed. These Trusts are now structured so that Julie’s wishes will be carried out.

Creating a Living Trust is an important part of end-of-life planning

Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.