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Estate Planning for Blended Families — His, Hers, Ours, and Theirs

Posted by Kimberly Crank Browning | Jun 28, 2022 | 0 Comments

It's not a surprise that second marriages can be complicated. On the one hand, the support of a new partner is often welcome after losing a spouse to divorce or death. On the other, it means combining assets and blending children from two different marriages into one family unit. The Brady Bunch made it look easy, but the reality can be anything but simple — especially regarding estate planning.

It's one thing to fight over stealing toys or who should win the class president election. It's another to divide an estate shared by people who have emotional investments in the property and those who own it. One thing's for sure — estate disputes take longer than 30 minutes to resolve. These disputes can indeed occur regardless of the decedent's marital status, but the second — or third — marriage can introduce complicating factors.

After the Walk to the Altar

Let's take a closer look at a couple, Sam and Sarah. Both of them brought children from a first marriage into the relationship — Sam had a son and daughter, while Sarah had a daughter. After a medical scare, they met with their estate planner, who recommended a revocable living trust. The trust gives each spouse power to fully amend the trust after the other's death.

On the surface, this seems like a suitable solution. The estate doesn't need to go through probate, and the beneficiaries can receive their property sooner — sometimes immediately. The trust also offers additional protection for the children and other beneficiaries. For example, if Sam and Sarah only have wills, the surviving spouse can still receive the share of the estate “spousal election” provided to them under Michigan law.

Sam and Sarah are pleased with their decision. They've talked about their wishes and believe the other will carry them out. They respect each other. They trust each other. They expect the other to be fair to their children because they're a family.

Unfortunately, those family ties can quickly unravel in the wake of death. When it's time to distribute the inheritance, the way they feel today can quickly change after losing a loved one. There's a good chance that the decedent's intent is ignored, and their wishes go unfilled. This is even more likely with blended families.

Concern 1: Managing an Age Gap

Imagine that Sam is 25 years older than Sarah, and Sam's son and daughter from his first marriage are just a few years younger than Sarah. Perhaps they even went to high school together!

A significant age gap between the spouses can create tension with the younger spouse and the children. The children may not appreciate having a step-parent who is the same — or nearly the same — age as them.

When their biological parent dies, the age gap takes on new significance. If the property in the trust goes directly to the surviving spouse, the children may have to wait years — perhaps decades — before receiving their inheritance.

They also risk losing everything to a spouse who relies on the trust for survival. So not only are the children forced to wait to receive what their parent left them, but they also may have to watch their step-parent use it all up before they have a chance to take possession of it.

Concern 2: Disinheriting Children

Sam and Sarah executed the joint revocable living trust expecting each other to care for all the children as if they were their own. For this reason, they gave the surviving spouse complete control of the trust because they trust each other implicitly.

Let's say Sam's children are doctors and lawyers, and Sarah's daughter is a nurse. When Sam dies and Sarah assumes control of the trust, she may decide to amend it to account for the disparity in the children's lifestyles. Perhaps she gives her daughter a greater share because she makes less money than the others do. Or, she may decide to increase Sam's son's inheritance to help him pay off the student loan debt he incurred in medical school.

Sarah also may decide that all of the property in the estate is rightfully hers simply because she was Sam's wife. She may decide that her rightful heir is her daughter and leave everything to her alone or skip all of the children because they have comfortable lives and do not need anything from their father's estate. In this case. Sarah may give everything to her favorite charity in exchange for a pavilion named in her honor or to a new love who enters her life.

Concern 3: Cutting Out the Surviving Spouse

The children aren't the only heirs at risk in family disputes. Imagine that Sam and Sarah's trust does not include the family home. Perhaps they decided to keep it out of the trust to give as a gift to the children.

The family may have a verbal agreement that the surviving spouse can live in the home as long as necessary. It's even possible that Sarah whispered this promise to Sam as she lay on her death bed.

When Sarah is gone, the children have the legal right to do whatever they want with the house. They may sell it for cash, move in, or rent it out. Their mother's dying wishes — even if they were in the room when she made them — mean nothing if the children choose to ignore them. Sam can end up on the street, and this happens far more often than people realize.

What's a Blended Family To Do?

There's really no way to predict how someone will act after the death of a spouse. This is why it's important to choose trustees carefully. No matter how well Sam thinks he knows Sarah or how well Sarah thinks she knows Sam, neither of them knows what will happen after their death.

Choose Trustees Carefully

Sarah and Sam do not have to give complete control of the trust to the surviving spouse. They may include the children as co-trustees. However, keep in mind that too many trustees can be just as dangerous as one trustee. If they are not able to make decisions together, they may find themselves stuck and going to court.

If Sam decides the family home is too big for him to take care of himself, he may want to sell the property and find something smaller. He presents his idea to the children, who all must agree to the sale. Sam's son and Sarah's daughter agree, but Sam's daughter doesn't like the idea of losing her childhood home.

She doesn't need the property and may not even often stop by to visit her father there. She may even have her biological mother in her ear, convincing her to hold on to the property for sentimental reasons or to wait for a better real estate market.

Update the Wills

Sam and Sarah get to decide what to include in the trust and they also have the option to leave some property out of it. They then can designate beneficiaries on accounts or pass on assets through their wills.

For example, Sam knows his children love his collectible cars because they helped him restore them. Sam may leave the vehicles out of the trust and instead leave them to his children. Since the cars were never included in the trust, Sarah has no say about whether the children receive the property.

If they choose this option, Sam and Sarah should update their wills to make sure it reflects their wishes and keep the will in a place where the children will be able to find it. The original will must be submitted to the probate court.

Consider an Irrevocable Trust

Sam and Sarah may decide to change what happens to the assets in a revocable living trust after the first spouse's death. Instead of giving all rights to the surviving spouse to modify the trust, they may make the trust irrevocable upon the first spouse's death. When the first spouse dies, the trust remains exactly as it was when they were both alive. Amending the trust may require the approval of all three children or court involvement.

Giving up control of the family's assets should not be done lightly. There's still a chance one of the children will be left out of the inheritance, and the decision cannot be undone quickly and easily. It is important to speak to a professional about the advantages and disadvantages of an irremovable trust before making this decision.

Communicate Clearly

Talking about death usually makes people feel uncomfortable, and family members may struggle to have these conversations. However, it's helpful to first let your loved ones know that you have put a plan in place and share with them where they may find the estate planning documents. 

Also, have the conversation with the successor trustees and personal representative to confirm they will follow through on the task of administering the plan you have carefully put in place.

Finally, don't make your family members go on a scavenger hunt to locate your assets.  Record your passwords to your electronic devises and accounts along with a list of your accounts and keep them with your estate plan. Knowing you've made your intentions clear and leaving the roadmap can give you peace of mind.

How to Protect Your Blended Family

Estate planning for a second or third marriage is different from estate planning for the first marriage. What is different is the number of factors to consider within the blended family. Choosing guardians, designating beneficiaries, and dividing assets can be tricky for those who want to be fair to everyone in the family, perhaps more so when there is an age gap between the children.

Putting together an estate plan for blended families is not a do-it-yourself project. An experienced professional can explain your options and guide you through the process, so you choose the best one for your family. Our team at Great Lakes Family Probate & Estates PLLC can help you do just that. Put our expertise to use for you and discover why we've been helping clients navigate complex estate planning issues for years.

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