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Estate Planning For Blended Families

On Behalf of | Mar 5, 2018 | Estate Planning

Blended families include children from a previous marriage of one spouse or both spouses and are increasingly common today. Second marriages that result in such blended families can be a source of great happiness but can also present an estate planning challenge.

In a blended family, it is often difficult to determine where assets should pass upon death. Often there exists two valid but potentially competing goals: (1) providing for the surviving spouse and (2) providing for the children from a previous marriage.

There are three basic approaches to distributing assets in a blended family.

  • (1) I refer to the first approach as “trust and obey”. The asset is passed outright to the surviving spouse and you trust that the surviving spouse will obey your wishes that the asset passes to your children upon the second death. The advantage is simplicity. The disadvantage is that your children may not receive any assets if the assets are used up prior to the second death or if the surviving spouse chooses not to obey your wishes.

  • (2) I refer to the second approach as “trust a trust”. The asset is passed into a trust for the benefit of the surviving spouse for the life of the surviving spouse and the trust passes the remaining trust assets to your children upon the second death. The advantage is that the surviving spouse will be provided for currently and the children will receive the assets eventually. The disadvantage is the awkward family dynamic created by the surviving spouse not having complete control over the trust assets and the children waiting for the step-parent to die before receiving the trust assets.

  • (3) I refer to the third approach as “divide and conquer”. At death certain assets are passed outright to the surviving spouse and other assets are passed outright to your children. The advantage is that goals of providing for the surviving spouse and the children are both satisfied immediately upon death. The disadvantage is it requires sufficient assets to provide for both the spouse and the children simultaneously. In situations where the assets are insufficient, life insurance can be used as part of this approach.

Additional complexity may arise in planning for a blended family because second marriages often include assets legally or mentally categorized as “yours, mine or ours”. Accordingly, one asset may pass using one approach and a different asset may be passed using a different approach.

Each blended family is unique and each blended family presents its own estate planning challenges. Let us help you develop an estate plan suited to meet your individual family goals.