Estate planning for the blended family
By Christopher L. Kelly, Esq.
More and more families in the US today are blended, meaning that one or both partners have at least one child from a previous marriage or relationship. In fact, sociologists estimate around 2,100 blended families are formed in the United States each day. While many of these people may have experienced a divorce in an earlier marriage, with life expectancies on the rise, more and more couples are also marrying in their golden years after having lost a spouse, so the expectation is there will be even more blended families (as a percentage of the population) in the future.
When it comes to estate planning for blended families, there are competing interests that provide some unique challenges. While a spouse wants to ensure his/her surviving spouse receives an inheritance after his/her death, he/she usually also wants to make sure that his/her children (for purposes of this article, any reference to children will assume they are the children of only one of the spouses and not of the current marriage) also receive an inheritance. Many times, both parties have substantial assets prior to marriage, and these assets were often accumulated during a previous marriage to the children’s other parent. Thus, the parent wants to make sure that at least some, if not all, of these assets go to the children of the previous marriage.
Without proper planning, a surviving spouse may become the new owner of all the assets the deceased spouse brought to the marriage, even to the extent of the complete exclusion of the deceased’s spouse’s children. However, by utilizing the strategies below, a person can find a balance between the dual goals of caring for the surviving spouse and caring for the children.
1. Prenuptial Agreement. One of the most effective ways to accomplish both goals is through a prenuptial agreement (prenup). A prenup is a legal agreement a couple makes prior to marriage that provides for how their marital estate will be divided in the event of divorce or death. While some people consider prenups “pre-divorces,” and while it is true prenups are used during divorce proceedings to control the disposition of assets, they are also valuable in estate planning for predetermining how property will be distributed at the couple’s respective deaths. Under Tennessee law, a surviving spouse has certain statutory rights of inheritance that supersede those of a child, irrespective of the terms contained in the will of the one who died. Those rights are usually waived in a prenup, thus ensuring only the terms of the person’s Last Will and Testament control what happens after he/she dies. With a well-drafted prenup, a couple can ensure their respective children’s inheritances are protected in the event of their deaths. Through this process, they can also identify assets they will own together to ensure the surviving spouse also receives assets.
2. Trusts. Some spouses may need the financial support of the assets of a deceased spouse after the deceased spouse is gone, yet each spouse wants to also make sure that his/her children receive something from the estate. To solve this issue, a person can design a trust funded upon his/her death that takes care of the surviving spouse during his/her lifetime. Then, at the death of the surviving spouse, the remaining assets in the trust are distributed to the children. The trust provides a mechanism in which these two competing interests can be balanced.
3. Beneficiary Designations. Another solution for leaving an inheritance to both the spouse and children is through proper designations on beneficiary forms. Many assets — such as life insurance policies, retirement accounts and annuities — allow you to designate a beneficiary to specifically inherit that particular asset. Thus, if a spouse owns these types of assets, he/she can utilize beneficiary designations to allocate how these assets will be distributed upon his/her death. Due to federal laws that protect inheritance rights of spouses, the spouse may have to grant permission for a designee other than himself/herself to be named.
Estate planning for blended families can be complex, but utilizing some of these techniques may help in finding the right balance between the surviving spouse and children. Because of these complexities, it is very important to seek the advice of competent counsel prior to entering the new marriage to ensure the best and appropriate strategies are in place.
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Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any transaction.