Estate Planning for Blended Families

What does estate planning for blended families look like?

Polling results from 2015 estimate that about one in six children lives in a “blended family”, which defines any family with a stepparent, stepsibling, or half-sibling. Furthermore, over 60 percent of remarried women marry into a blended family. There are estimates that at least half of American families are remarried or re-coupled.

With the normalization of divorce and starting anew, American society has gradually moved away from the image of a single, ideal nuclear family, and towards a greater social acceptance for families of all shapes and sizes.

That’s a good thing. Blended families have been a reality for far longer than even the history of the United States and expanding the definition of an ideal family to include every family that provides unconditional love for its members, regardless of the way it was configured, represents social progress.

But there are still elements of American society that haven’t caught up to that progress. Our family laws sometimes still favor biological children and nuclear families.

Blended families, or any other alternative, can lead to complications and headaches when the time comes for the estate to be distributed. Thankfully, there are many different ways to plan for that day and make sure that what you own and control goes to the people you love and care about the most.

The Basics of Estate Planning

The rules of inheritance are superficially simple. If you have no existing plan, then everything you own will be named, valued, and passed on to your next of kin via a probate process in the county of your residence.

Community property passes to the surviving spouse, along with half of all separate property. The rest goes to children, or parents, or siblings. In the absence of anyone else, there’s a cutoff point after cousins and grandparents, where the state temporarily claims unclaimed property, until an eligible heir appears.

These rules differ as the details grow, and as you begin to look into the specifics. States each have their own probate code, alongside different rules for intestacy and intestate succession.

Aside from the simple question of who gets what, there are also costs to consider. The probate process can be simple in some states, and much more involved than in others. Some estates qualify for an expedited process in certain states, but not in others. Some states feature an estate tax on top of the federal estate tax, while others don’t. Some states have an inheritance tax.

Estate plans are meant to take all of the unique circumstances of your estate, as well as the requirements and quirks of your state and county, and translate this information into a series of legal documents that end up sending your wealth and legacy to the people you want it sent to, as efficiently as possible.

They can also help you manage your wealth, reduce your tax liability, protect assets from creditors, and assign the ability to make medical or financial decisions in your name if anything happens to you.

Anyone can benefit from an estate plan. The larger the estate, the more complex the plan – but even a modest estate may have certain circumstances that warrant the use of something like a special needs trust, or an advance medical directive.

How Does Estate Planning Differ for Blended Families?

We’ve mentioned that without an estate plan, everything goes to the surviving spouse and children. Co-owned property, or community property in community property states like California, automatically passes to the spouse – while separate property is often halved, or split between surviving next of kin.

But what happens when there are step-children involved? What happens if your surviving spouse marries into another family, and has a falling out with your children? What if your spouse prioritizes the children she brought into the family over those you brought in from previous marriages?

There are many circumstances under which simple intestate succession – or the superseding will and planning of an heir – can drastically change the way in which you might have planned for your property and wealth to pass on through the generations.

Even if you are not in a blended family, there are many circumstances under which just leaving things to the state – or even a simple will – won’t make anyone happy. If you live with an unmarried partner, they will not inherit anything without an estate plan.

If they fall ill, chances are that you might not even have a say in their treatment and healthcare over that of their parents – who might not have seen them for years, or have any understanding of what they might have wanted. If there are children involved, things can get very complicated, very fast.

Here are a couple of important pointers to keep in mind:

• Trusts are powerful. A trust can be used to fund assets, properties, and money into a legal entity that exists under your name, and is managed by a trustee you appoint. Trusts can function with and without you, managing whatever is funded into them over time, even after you have died, for the benefit of the people you care about. The caveat is that long-term, complicated trusts can be expensive to maintain. An experienced estate planning attorney is important to help create an efficient and effective trust.
• Create powers of attorney. Regardless of whether you are married or unmarried, a durable power of attorney can be written to kick in when you are incapacitated, or unable to communicate. This is especially important if you want a specific person in the family to speak for you.
• Leave assets directly to your children. If they are underage, you can use a trust to hold, manage, and invest assets until your children are of age, or have reached a designated point of maturity. You don’t need to automatically give them access to their entire inheritance at 18 – through a trust, you can provide them with monthly income, and eventually pay out the remainder to them once they are older, finish college, or fulfill a different requirement.

Important Considerations

Estate plans are not a one-and-done. Prepare to revisit and revise your estate plan over the years. There is no way of telling what you might want or need out of an estate plan in ten, twenty, or thirty years.

Revising your plan every few years, or after every major life event, can help you ensure that it is always up to date – no matter what happens to you.

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