Anyone married with step-children can appreciate that blended families approach certain family matters very differently than non blended families; just look at the “Brady Bunch”. Estate planning is one of these areas. For example, estate planning for parents of blended families is usually not “to give everything equally amongst my children and step children”. Instead the distribution scheme will vary, typically depending on a wide range of issues including, but not limited to, how well you get along with your step children; whether you raised your step-children; how much wealth you have to distribute; are there special objects and photo albums that stay with your children only; what will the children inherit from their other natural parents; and what are their individual financial needs. Moreover, you may not want to leave everything outright to your surviving spouse (as many non blended couples do) either because you do not want to risk that your surviving spouse might disinherit your children, or because you want to give a significant portion of your estate to your own children at your own death, so that they don’t have to wait any longer. With all this in mind let us now look at planning options.
People getting married again are usually older and so often have accumulated substantial separate property assets prior to the marriage. That premarital wealth is separate (not community) property, so long as it is separately titled in one’s own name to avoid becoming community property (which is divided equally at death and divorce). In order to retain full control over your separate property, you may wish to keep that in a separate property trust which will be distributed according to your wishes.
A separate property Trust still allows for support of your surviving spouse as you see fit. Either your surviving spouse or one of your children may become the Successor Trustee of your separate property after you die; again another issue. (You may even choose to have a protector who can replace a trustee if circumstances warrant.) Typically, such support includes allowing your spouse to continue to live in your residence. That in itself raises the issue of whether your surviving spouse should pay the real property taxes and normal upkeep associated with the residence, if it is partially or totally your separate property. Why? Because the house otherwise would have been sold and the proceeds distributed out to the children without the need for further expense. This issue needs to be addressed. Also, what if your surviving spouse improves the residence, is [s]he (or his/her estate) then entitled to share in the appreciation of the property’s value or just to be reimbursed when it is sold?
Also, the Trust can further financial support to your spouse if his/her assets are inadequate. Who decides? You may want the Trust to say that one of your children decides whether supplemental money is appropriate and if so how much. Usually the Trust requires the surviving spouse to exhaust his/her own cash resources before receiving any money from your trust estate, to protect your children’s inheritance.
If you have significant community property from the current marriage and have children together, how will you treat your own children from this and prior relationships? Probably the community property will be left entirely to your child(ren) in common. What about the separate property? You probably will have a blended approach. That is, you may decide to leave certain assets entirely to your own family and to provide in other ways for your surviving spouse and step children. You may designate different persons to inherit under your retirement plans and life insurance than who inherit under your Trust.
Lastly, the result is likely to be much better if you deal with these issues before you die, rather than let the chips fall where they may. You may wish to consult your spouse and children regarding their needs and expectations, and discuss your own vision of what you see as right.
Editor’s Note: Dennis A. Fordham is an attorney licensed to practice law in California and NewYork. He earned his BA at Columbia University, his JD at the State University of New York at Buffalo, and his LLM in Taxation at New York University. Dennis concentrates his practice in the areas of estate planning and aspects of elder law. His office is at 55 1st Street, Lakeport, California. He can be reached by e-mail at firstname.lastname@example.org or by phone at 707-263-3235.
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