Estate planning for blended families is important because of the competing interests between the children from the first marriage and the spouse from the second or third marriage.
A blended family often refers to married couples with children from previous marriages or relationships. Blended families can include families with step children, adopted children, or half siblings. Within blended families, there can be concerns about inheritance size, naming an executor, and overall fairness. These concerns can bring up difficulties when creating an Estate Plan, but they are important to address.
What is Typical Estate Planning for Blended Families
It is important to do estate planning for blended families. Without a plan, your assets will pass by intestacy. Under intestacy, New York state law governs how assets are disposed of. In the event that you do not have a Will but die survived by your spouse and children, your assets will pass as follows: the first $50,000 to your spouse; the next $25,000 to the spouse for family exemption and then the balance is divided one-half to your spouse and one-half outright to your children. This may not be the result that is right for your family. Your spouse may need income and access to assets during her lifetime. Additionally, you may not want to give your spouse one-half of your assets outright. Indeed, blended families require estate planning.
A typical estate plan for blended families includes a Last Will and Testament, with a testamentary Trust for the benefit of the spouse and/or children. Typically the Will includes provisions for the care and maintenance of the surviving spouse. Indeed, the Will includes provisions for distribution of trust income and distribution of principal for health, education, maintenance, and support for the spouse. Upon the surviving spouses death, the typical estate plan includes distributions to the Testator’s children and/or children from both marriages, and/or children of the surviving spouse. Typically, the surviving spouse will serve as a co-Trustee of the Trust established for her benefit so that she is part of the decision making process in determining how/when to distribute income and assets.
A Will may not be the Best Estate Planning for Blended Families.
Even if you have a Will, your family will still have to go through a court process called probate. During the probate process, your Will is going to be submitted to the Court and become a public record. Your spouse and children are all necessary parties and will be given a chance to contest the Will. Your spouse and next of kin will need to sign a Waiver of Process; Consent to Probate. If the spouse and/or children do not want to sign the Waiver, then the Court will issue a Citation. This can become problematic with blended families, especially in cases where family members do not respect the relationship or acknowledge the existence of the spouse. Arguments between spouses and children are common in Surrogate’s Court. In such an event, a Living Trust may be a better estate planning tool for blended families. The reason that a Living Trust may be better is that it is a private document, and does not require affirmative steps vis a vis the Court. Upon your death, the assets automatically pass, without Court intervention, in accordance with your document. (Although there are ways to set aside a Trust and litigate in Court, the burden is on the person seeking to set aside the Trust to prove it was incorrectly or improperly established. In addition, although Trust litigation is possible, you do not need the affirmative consent of the spouse and child, as you would in probate, to continue with the transition of the Trust assets).
How a Revocable Living Trust for Blended Families Works
A better way to avoid the Court and maintain privacy over your assets is to fully fund a Revocable Living Trust.
A Revocable Living Trust is a legal document created during your lifetime which allows you to control your assets while you are alive and dictate who inherits these assets after your death. You can dictate the age when a spouse or child may inherit or even shield the assets from the beneficiary’s creditors. You may appoint yourself or another individual or trust company as Trustee to manage your assets.
With a Revocable Living Trust, you will not need to go through the Court to provide for your loved ones, and if you are separated from your partner, you can simply amend the Trust and avoid the tedious process of retitling assets. This gives you the most flexibility in estate planning, while giving the maximum protection for your unmarried partner. Indeed, a Revocable Living Trust gives you the maximum control over your assets, and gives your spouse the maximum protection after your death. In addition, the Revocable Trust can provide for income and certain principal distributions to be used for the surviving spouse during their lifetime, and then have the assets pass to the children following the death of the surviving spouse. With a Revocable Living Trust, you can a
- avoid the time, cost, loss of privacy, and loss of control of probate
- avoid the pitfalls of Wills and joint ownership and beneficiary designations.
- avoid unintended consequences which may cause fighting between your spouse and child(ren)
- if you and your partner separate, you can simply change your trust without retitling or dividing assets
Joint Ownership or Beneficiary Designations as Estate Planning for Blended Families.
Assets owned jointly or those that have valid beneficiary designations do not pass by your Will. At death, these assets will go to the joint survivor or the designated beneficiary, regardless of what is written in your Will. Sometimes creating joint accounts can be a good indicator of intent. You can use joint accounts or create individual beneficiary designations as a method of dividing your assets among your spouse and various children. Although adding a joint account holder or beneficiary may seem like an excellent and cost effective strategy, there are sometimes pitfalls. Certain common issues that can arise are:
- joint owner’s possible misuse of joint assets
- joint assets are exposed to joint owners creditors
- removing a joint owner can be difficult
- Joint assets or assets with designated beneficiaries do not provide asset protection
- Joint assets or assets with designated beneficiaries may incur taxes after death
Although joint ownership and beneficiary designations can be a quick fix solution, they are not a holistic approach to estate planning for blended families.
We can help you engage in proper estate planning for your blended family. Please feel free to contact us today so that we can start tailoring a plan that fits your needs.
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