Planning For Blended Families
Considering that approximately half of all marriages end in divorce, it is not surprising that many of our clients have blended families—that is, a family in which one or both spouses have children from a previous marriage. This can present unique estate planning challenges, particularly because the interests of a current spouse and any mutual children often conflicts with the desire to provide for one’s children from a previous marriage. Disharmony between the previous family and the new spouse can lead to a number of difficulties in drafting and implementing an effective estate plan.
For example, if all of an estate’s assets are left to the new spouse, the children from a previous marriage may not be provided for in the manner the deceased spouse would have wanted. This is because there is no legal obligation to support stepchildren. In addition, the surviving spouse might, upon his or her death, leave all of the assets to his or her children, thereby excluding the children of the first spouse to die. Similarly, if assets are left only to prior children at the death of their parent, there may not be enough assets remaining in the estate to provide for the current spouse or family.
Even with a harmonious blended-family, failure to create and implement an estate plan may lead to unforeseen problems. In situations where death occurs without a will or trust in place, statutory intestacy rules may remove up to two-thirds of the deceased spouse’s estate from the current marriage and give it to the children from the previous marriage. This can happen even if the prior children are now adults and have less need for the assets than the spouse and minor children of the current marriage. In situations where the prior children are minors, an ex-spouse might be able to gain control of the assets. At the very least, each spouse in a blended family should have a will. Without one, assets will more than likely be distributed to heirs in a manner contrary to what the deceased spouse would have wanted.
A properly designed and adequately funded trust is a much better approach than a will for blended families. It can provide for the surviving spouse while ensuring a portion of the assets for children from the previous marriage. One such trust, which provides an excellent form of asset protection, is called a Qualified Terminable Interest Property Trust (QTIP). When property passes to a QTIP trust, it becomes eligible for the marital deduction. This means the property is not taxed upon the trustmaker’s death, leaving the entire amount available for the surviving spouse’s support. The QTIP trust can generate income for the benefit of the surviving spouse during his or her lifetime. When the surviving spouse passes away, the QTIP’s assets can be distributed between mutual and prior children according to the wishes of the previously deceased spouse. In addition, if the children from the previous marriage are young, assets from the QTIP Trust can be held in another trust for the children, under the control of an independent trustee. This can prevent the assets from falling under an ex-spouse’s control.
There are many other strategies and tools available to balance benefits passing to a new spouse with benefits for the children of a previous marriage. We have the experience and mastery of the law to design and implement an effective plan capable of meeting your wishes with regard to every member of your blended family. Contact us today for a free consultation.