BLENDED FAMILIES AND ESTATE PLANNING: PROTECTING CHILDREN OF BLENDED FAMILIES
Every adult needs an estate plan. However, making decisions for a blended family’s estate planning can add an extra level of complication. How can you protect your children and your step-children in your estate plan?
(Yes, I am an attorney, but I am not your attorney. Nothing in this post should be construed as legal advice or to create an attorney-client relationship. The information in this site is purely informational and educational. Please consult with your own attorney regarding your personal circumstances.)
BLENDED FAMILY DYNAMICS
When I meet with an individual regarding his or her estate plan, I want to know 3 basic things:
- What they own.
- How they own it.
- Who they want it to go to after death.
RELATED POST: What your estate planning attorney needs to know.
To Access my free printable estate planning questionnaire, click here.
However, if you have a blended family, you likely have an additional concern: how do I ensure that my estate plan isn’t changed after my death?
Sadly, a common concern for many blended families is how to not only treat the children/step-children equally, but how to enforce equal treatment after the death of one of the parents.
Blended family problems
Many people can recount stories of step-parents who distributed the assets to her children while leaving out step-children. Others can tell stories about estate plans that were essentially revoked because the surviving parent changed the terms of the trust or will after the death or incapacity of the other parent/step-parent.
In many cases, leaving step-children out of the inheritance is much more innocent and inadvertent. Most states don’t consider step-children as intestate heirs, and the law doesn’t offer protection to step-children where the parent did not have a will or estate plan.
So, even if the parents intended to treat all of the children equally, the law does not. Or, even if the parents made an estate plan that treats the children equally, long term care, changes in legislation, or other events could change the plan.
Therefore, when making your estate plan for a blended family, you have a lot of additional considerations. In the absence of a prenuptial agreement, parents have several options to ensure that their children are protected from the caprices of step-siblings or changes in circumstances or law.
A WILL ALONE IS INSUFFICIENT TO PROTECT CHILDREN OF BLENDED FAMILIES
Yours, mine, and ours, right? Husband and wife often come to me and declare that they want all of the children to be treated the same regardless of who dies first or whose child they are.
If wife has 3 children and husband has 2 children, they often insist that they want the entirety of the estate to be divided 5 ways.
However, if the only steps that husband and wife make to protect those children is to make a will, then they should also understand that the will, the beneficiary designations, and even trusts are generally revocable and modifiable.
RELATED POST: CAN I CHANGE MY WILL?
Unless the trust is irrevocable, the will is contractual, or the beneficiary designations are irrevocable, a parent/step-parent still has the power to change the estate plan after the first parent/step-parent’s death.
Wait; you say. I thought that my will couldn’t be changed after my death.
Correct, your will can’t be changed after your death, but your surviving spouse could still give away joint accounts, jointly-held property, or even change beneficiaries on joint accounts.
Further, your surviving spouse’s attorney-in-fact could even change the ownership on your marital home, change beneficiaries, or establish an alternative trust.
Related Post: Estate Planning Powers of Powers of Attorney LINK
So, how do you ensure an equal distribution among your children and step-children even if you leave a surviving spouse?
IRREVOCABLE ESTATE PLANNING MEASURES FOR BLENDED FAMILIES
As always, discuss your specific plan and your specific family dynamics with your attorney. However, your attorney might discuss some of these options with you:
Life Estates:
A life estate is a grant of interest in property that extends only for the length of the grantee’s lifetime. If husband grants a life estate to wife, then wife has the right to remain in the property for as long as she is alive.
After the wife passes away, the property becomes the property of the remaindermen.
Those remaindermen could be the children/step-children equally.
In other words, husband and wife could create a deed for the marital property that states that the property is deeded to the husband and wife as a life tenant and to the children as remaindermen. This means that the only way for any of the children or step-children to be cut out of the share of the property is with the knowledge and consent of all of the life tenants and remaindermen.
Trust with limited revocation/amendment:
Trusts are an important part of many estate plans. Some trusts are irrevocable the moment that the grantors form them.
However, revocable living trusts are likely the most popular form of trust and are…as they imply…REVOCABLE.
A revocable living trust is generally modifiable and revocable by either grantor during his or her lifetime. Most revocable living trusts are revocable even by the surviving spouse.
Therefore, if you and your spouse establish a spouse for your blended family that is freely revocable or modifiable, then your spouse can easily remove your children from the trust after your death.
To avoid this, your revocable trust should have limited rights of revocation. It could:
- Become irrevocable after the first person’s death
- Limit the right of either grantor to remove a child, or
- Contain equalization clauses which take into account the amount of money that any child or step-child receives from any source and equalizes the gifts to make them all equal. For example, if a surviving spouse makes a gift to one child out of assets of the trust, then the surviving spouse should make gifts to all of the children/step-children out of the trust.
Contractual Will:
A contract is an agreement between 2 or more people that cannot be changed absent the agreement of the parties.
Unlike a standard will, a contractual will cannot be changed without the consent of the parties. While a standard will is freely revocable or modifiable during life, a contractual will cannot be changed.
A contractual will, generally made between spouses, requires that the other spouse not change his or her will without the other spouse’s consent. Therefore, the surviving spouse is unable to disinherit the step-children.
(While contractual wills are generally disfavored and rarely used, they are an option. However, you might be better served by a trust. )
Irrevocable Beneficiary Designations
Another option for blended families is to create irrevocable beneficiary designations. Nearly any account, investment, or other asset can have a named beneficiary.
Some contracts, accounts, or assets will even allow the owner to create an irrevocable beneficiary. This means that the beneficiary that the account owner creates cannot be changed by the attorney in fact, power of attorney, surviving spouse, or even a court.
Irrevocable beneficiary designations for life insurance policies or other accounts help protect children and step-children of blended families against disinheritance.
ESTATE PLANNING FOR BLENDED FAMILIES: PROTECTING CHILDREN AND STEP-CHILDREN
In 1985, the US Census Bureau estimated that 5% of American households had stepchildren. By 2010, the number reached more than 7%, and that number has only continued to grow. This means that for millions of American families estate planning has to consider the treatment of step-family. (https://www.census.gov/newsroom/stories/stepfamily-day.html)
Discuss your family dynamics, your estate planning goals, and even your family relationships with your attorney so that you can determine whether one of the options above is right for you.
Your attorney might even recommend a different solution for you, but don’t just settle on a simple will or online form. Instead, consult with an attorney who can meet your needs and appreciate the uniqueness of your blended family.