Estate planning for blended families presents unique challenges and requires careful consideration. Individuals often try to balance providing for their spouse, taking care of their children from a previous marriage, and taking care of children from their new marriage. Whether you are located in Foley, AL, Gulf Shores, AL, or the surrounding areas, these considerations are crucial. Families may want to provide for their stepchildren (i.e., children from their spouse’s previous marriage) or ensure that none of their assets pass to those stepchildren.

This article explores some of the issues to consider, such as unintentionally disinheriting one’s own children, protecting assets, and selecting trustees. It also dives into the pros and cons of the two primary estate planning tools available—revocable living trusts and wills—and how they can be effectively used to meet the needs of blended families. As you advise blended families about their estate planning, keep the following important data in mind:

According to the US Bureau of the Census, over 1,300 new stepfamilies are formed every day. There are 60 million children in the United States under the age of thirteen, and 50 percent of them currently live with one biological parent and that parent’s current partner. More important is the number of remarriages that end in divorce. Statistics reflect that 66 percent of remarriages break up when children are involved.

Estate planning for multifamily households in Foley, AL, and Gulf Shores, AL, should anticipate the possibility of a future dissolution of the marriage.

The Complex Blended Family

The complexities of estate planning for blended families are best illustrated using an example.

Mark and Katy have five children between them, only one of whom is their joint child. In their initial meeting with their estate planning attorney, they stated, “We don’t have a lot of assets; we just want to keep things simple.” Both of them had professional careers with good incomes and a number of assets, but after their child was born, Katy became a stay-at-home mom. Katy inherited her parents’ beach house, and although she and Mark use it with all of the kids (his, hers, and theirs together), she wants to ensure that her children always have the right to use it and ultimately inherit it without the risk of the property passing to Mark’s next wife or to his separate children. Katy also wants to ensure that she has sufficient assets on which to live should Mark predecease her. Mark wants to provide for Katy for her lifetime, but he does not want her to cut out his children, especially since Katy currently does not get along with one of them. So Mark wants to leave one of his larger investment accounts to his separate children. What he has not considered is that Katy gave up the ability to continue to make her individual investments after they married and the impact on Katy’s lifestyle if those funds were no longer available to her after Mark’s death.

Estate planning attorneys in Foley, AL, and Gulf Shores, AL, must help clients understand the complex issues involved in planning so that they can make educated decisions. While couples like Mark and Katy often wish to keep things simple, that will not always serve their interests. For example, by truly keeping things simple, Mark and Katy might choose to have basic wills that provide for one another and then divide the assets among all of their children after they both have passed. But this can be a recipe for disaster if a surviving spouse later changes the plan to disinherit their stepchildren. In order to provide for each other and for their separate and shared children appropriately and according to their wishes, Mark and Katy may not be able to keep everything simple. Bringing these considerations to the table and helping clients navigate these difficult conversations can be uncomfortable, but doing so can help avoid disputes and ensure that the estate plan is executed as intended.

Marital Statutory Rights

If a person leaves all or a majority of their assets to their children rather than to their spouse, their spouse may not have enough resources to maintain their lifestyle. In most states, including Alabama, the spouse has the right to claim an elective share against the estate if they are left with less than the statutory amount to which they are entitled based on the length of their marriage. Asserting such a claim is likely to create or exacerbate animosity between the spouse and stepchildren, resulting in unnecessary legal expenses for both parties.

Unless couples have premarital or postmarital agreements waiving their rights to an elective share, estate planners in Foley, AL, and Gulf Shores, AL, need to explain that these marital rights are provided by law when individuals propose leaving their spouse less than the amount the law allows.

There is also the matter of fairness to consider in determining the size of the children’s inheritance. In our example, Mark and Katy’s joint child is likely younger than the other children and thus may have greater needs in the immediate future. Additionally, there is often an assumption that the children from prior marriages will receive an inheritance from their other parent. For these reasons, the couple may wish to provide a greater share to their joint child.

When a Will Is Not Enough

Using only a will to provide for a spouse and children from a previous relationship can present a challenging task. In many cases, couples leave everything to one another with the expectation and hope that all of the assets will be divided among their respective children after the death of the second spouse. However, there are no guarantees that those plans will come to fruition after the death of the second spouse, who may have remarried, have new stepchildren, or may not maintain a relationship with the deceased spouse’s children.

One estate planning option is to use a testamentary qualified terminable interest property (QTIP) trust or similar marital trust in a will that can provide income to the survivor and access to principal for additional needs. One potential drawback is that, because the surviving spouse can be the only beneficiary of such a trust during the survivor’s lifetime, the stepchildren may have to wait many years to inherit their share of the assets, which can be a source of tension and conflict. Additionally, controlling the disposition of individually owned real estate and personal property can be challenging, and probate is required to establish the trusts and regulate the use of the real estate. Furthermore, if all of the financial assets pass by beneficiary designation and there are creditor claims, it may be necessary to sell the real estate owned by the decedent to satisfy those claims.

A word of caution: Naming a testamentary trust as the transfer-on-death designee may be difficult, if not impossible, depending on where the accounts are held. Certain financial institutions require that a person be named and will not allow the trustee of the testamentary trust to be named because the trust will not exist until the account owner dies and the will is probated. Clearly, accomplishing Mark and Katy’s estate planning objectives in Foley, AL, Gulf Shores, AL, or elsewhere is not simple.

Revocable Living Trusts

A revocable living trust (RLT) is often a much more effective strategy for blended families in Foley, AL, and Gulf Shores, AL. If properly drafted and funded, an RLT can provide for a surviving spouse while still protecting assets for children from a previous relationship. An added benefit is that it can eliminate or at least minimize the need for probate and the possibility of an elective share claim or will contest.

An RLT can be set up so that all of the assets are available for the surviving spouse during their lifetime, with assets passing to the children after the spouse’s death. Alternatively, the assets can be divided across separate sub-trusts created for the spouse and the children. The RLT can also ensure that the survivor does not control or retain access to certain trust assets if the survivor remarries.

In our example, Katy can place her beach house in the RLT and design any restrictions on the use of it that she desires. For example, perhaps the RLT could specify that Mark and the children can use the beach house, but if Mark remarries, he loses that right. Katy can also ensure that her separate children eventually inherit it outright.

Mark can set up a QTIP or other marital trust for Katy’s use during her lifetime or until she remarries, providing her with annual income and perhaps some access to principal for her needs. The remainder of the principal will pass to Mark’s named beneficiaries at Katy’s death. Mark can also set up a trust share for the children from his prior marriage to satisfy any support obligations he may have or ensure that they do not have to wait for Katy to die before receiving an inheritance.

For more information on setting up a revocable living trust, visit our Estate Planning and Probate page.

Joint or Separate Trusts?

Whether to create a joint trust or separate trusts is an important consideration in working with multifamily households in Foley, AL, Gulf Shores, AL, and surrounding areas. The following questions can help guide this determination:

• Do they already maintain primarily separate accounts, or are most of the assets already combined? If assets are already combined, the use of a joint trust may be the better option for maintaining the status quo. If assets are separate, they may wish to retain the certainty of control and autonomy that separate trusts allow.
• Are they trying to protect separate inherited or premarital property? A separate trust is certainly easier to amend if one wishes to make changes in the future because it will not require the consent or joinder of the other spouse. A joint trust may require more communication and collaboration if changes are needed in the future. For couples who have been married for a long time, the spouses may wish to leave most of the assets outright to one another but preserve premarital or inherited property in a separate sub-trust for their own children.
• Considering the statistic that 66 percent of remarriages break up when children are involved, separate trusts may be the best option. With a joint trust, both parties must execute entirely new trusts if they divorce. With separate trusts, they can simply amend the trusts to write out their estranged spouse.

Preserving Family Heirlooms

When individuals in Foley, AL, and Gulf Shores, AL, have family heirlooms or other personal effects that they wish to leave to their respective children, a good strategy is to make specific distributions of those items. Typical language in wills and trusts leaves all tangible personal property to the surviving spouse and to the children only after the survivor’s death. A better option is to make a specific distribution of the deceased spouse’s personal effects to their children while allowing the surviving spouse to continue using all household furnishings, appliances, and other items needed in the day-to-day operation of the property. Preserving family heirlooms is particularly crucial for blended families, because the meaning and history of certain objects can become blurred. These items may be the only physical reminders of a family member who is no longer alive. In blended families, the preservation of heirlooms can help create a sense of unity and belonging for all members, or it could create a tense divide between the parties involved. It is imperative to ensure that those with sentimental attachments to particular family heirlooms actually receive them.

Choosing an Impartial Trustee

The surviving spouse should not be the trustee of a QTIP or marital trust. While no adult wants to have to ask for money or lose control of assets, having an independent trustee is crucial for effectively protecting the assets. Therefore, choosing an appropriate trustee for these trusts is extremely important. Naming one’s children to serve as trustee or co-trustee is generally not a good idea in this situation. They are generally not impartial, as their interests would be to preserve principal so they can inherit more later. Consider using attorneys or corporate fiduciaries to serve in this capacity to ensure impartiality. The trustee may face conflicts between the spouse and stepchildren and must balance providing for the spouse in the present and protecting assets for the remainder beneficiaries in the future. Experienced professionals in Foley, AL, Gulf Shores, AL, or surrounding areas are far better equipped to handle such issues.

Clear and open communication, raising awareness, and educating clients on the many complex issues involved in estate planning for blended families, together with thorough and careful planning, can minimize family conflict and ensure that the couple’s assets are managed effectively and distributed according to their wishes.

For further guidance on estate planning, visit our Blog or schedule a consultation with one of our experienced attorneys in Foley, AL, or Gulf Shores, AL.