As Bay Area estate attorneys who’ve seen it all, we think every adult needs an estate plan. However, there are certain circumstances where estate plans should be a legal obligation. These include:
- Adults with minor children
- Any family with individuals who have special needs
- Children whose parents have dementia
- Blended families
Today’s post focuses on the last one of the bunch. If you’ve remarried and you or your current spouse have children from a previous relationship, estate planning is necessary.
Proactive Estate Planning Essentials For A Blended Family
Blended families bring complex estate planning issues to the table. How your estate is divided between biological children and step/bonus children can quickly become sticky. Without an estate plan in place, your blended family estate is far more likely to wind up in probate court with a family battle of some type rather than being efficiently and cleanly distributed according to your wishes.
This is especially true if either of your exes is still angry, holds resentment, or would feed your (step)children’s fire about “fighting for what’s theirs.” Nobody wants to leave that legacy, and our expertise around blended families and estate planning will ensure you cover the most crucial ground, as well as the helpful “little extras.”
5 Things to Consider for Blended Families, Wills & Trusts
Here are five things to thoughtfully process and clarify as you create your estate plan.
Refresh the beneficiaries
We can’t tell you how often clients come to us because their spouse’s ex was the original beneficiary of so many accounts from 30 or 40 years ago – and that information was never refreshed after the divorce. As a result, the life insurance policy or long-term care policies you have, retirement or investment accounts, may all go to your ex- and your children, and there’s nothing anyone can do about it.
This is one of the reasons we recommend reviewing your estate plan on a regular basis. Life changes fast, and last year’s information may be irrelevant. If you don’t have a will and trust in place for your blended family, take this moment to review all of your beneficiaries. Log into every insurance policy, bank account, investment portfolio, retirement account, safe deposit box, etc., to ensure sure the beneficiaries on file represent your current intentions. You can select multiple beneficiaries for each account and specify the percentage benefit for each one (more on that in #3).
If you foresee any debate or contention around an estate plan that honors your step-children, making them direct beneficiaries or Pay on Death (POD) recipients on financial accounts is a savvy way to ensure they get what you want them to get with less risk of litigation or sibling battles.
Would you benefit from separate trusts?
There are many different ways to set up a trust. Some of the most common and straightforward include:
- Outright ownership. This is the automatic pilot model if you die without an estate plan or will in place. California is a community property state, which means your spouse automatically inherits the entirety of your estate upon your death unless something else is arranged. In most cases, the state recognizes a lineage of inheritance that includes step-children as equals to biological children depending on their age/custody situation when you remarried. It seems straightforward unless children or other legal heirs begin to squabble, making outright ownership a risky proposition for blended families.
- Family Trusts. With this model, all of the couple’s assets go into a combined trust, and the surviving spouse determines distributions based on the children’s needs.
- Marital Trust. This is one of the most popular trusts for blended families. With a marital trust, certain assets are distributed immediately to heirs and beneficiaries in specified amounts. The rest remains in the surviving spouse’s trust, which is redistributed according to their wishes when they die.
- Immediate bequests. Some parents opt to create a will that includes immediate bequests and a separate trust model for the remainder of the combined assets. This is a good idea because it ensures family heirlooms or special, inherited collectibles remain in the same family line.
Here is the thing to keep in mind; most people have the best of intentions, but other life scenarios can interrupt or prevent asset distributions as you intended if you don’t have a solid blended family estate plan in place.
blended families are not obligated to treat all heirs equally
When we say this, we are not explicitly speaking about biological/adopted children vs. step-children – although it may apply to that circumstance. It’s important to know that you do not have to treat all heirs equally. If you don’t have a will, trust, or estate plan in place when you die, the state will distribute your estate equally. However, you have no legal obligation to do so yourself. In fact, in many cases, it’s downright unfair to do so.
For example, let’s say you have a child that performs 100% of your or your spouse’s caregiving so you can age-in-place at home; the other children hardly stop by or participate in caregiving fees or responsibilities. You may decide to leave your caregiving child with a larger financial bequeath or a larger portion of the share of your home/property. Maybe one of your children has “borrowed” money repeatedly but never paid it back; we encourage subtracting owed funds from their portion of the estate, with whatever interest rate was agreed upon.
Think carefully about how your estate and assets are distributed so it reflects reality and your personal values. For example, we’ve seen absentee or unkind children get very little in some cases, whereas devoted nieces, nephews, or grandchildren received most of the assets. It all depends on your relational reality and what feels most balanced and equitable given a lifetime of circumstances.
Think about sharing basic estate planning details with children
There is no reason to share all of the nitty-gritty details of who gets what when you die. That said, we encourage clients to share basic information about estate plans with children/heirs to prevent any surprises or information that could ripple the water down the road.
For example, it’s probably a good idea to share:
- That you have an estate plan, where it’s located, and attorney contact information
- The trustee/executor (always ask first before assigning this role)
- POA and medical directive information
- The general structure of your estate plan (for example, “our estate plan has immediate bequeaths based on who dies first and a secondary marital trust after that…”)
Experienced estate attorneys can help you determine what is most important to share with heirs, and we’re happy to schedule these sessions in our office to serve as an objective, third-party presenter.
Should you begin distributions now?
Don’t automatically assume asset distribution needs to wait until you or your spouse dies. Many estates (not to mention their heirs/beneficiaries) benefit from distributing assets sooner rather than later.
The IRS allows you to give a maximum of $15,000 per year as a gift before paying taxes. Couples can receive $30,000 per year without paying taxes. This creates a substantial tax break for heirs/beneficiaries over the years while minimizing your estate taxes. The combination of gift taxes and charitable trusts and contributions can save families tens of thousands of dollars or more over your lifetime.
Experienced Estate Planning for Blended Families
Are you ready to create a tight and loop-hole free estate plan for your blended family? Contact Tseng Law Firm, (510) 835-3090, and schedule a consultation. We are happy to meet with you, listen to your story, and create a comprehensive estate plan that takes your values, history, and intentions into the equation.