If a blended family is not cohesive to begin with then it is prone to unravel when either stepparent dies. When it does unravel any festering unhappiness or distrust between the surviving step parent and stepchildren can erupt into hostility. Hostility turns to quarreling over the deceased person’s assets. How can good estate planning improve the outcome for all concerned?
A blended family needs a well conceived, drafted and implemented estate plans for husband and wife. Otherwise, unintended outcomes under California’s Probate Code default rules may negatively impact the surviving family.
Consider a married couple where each spouse has two adult children of their own. Their estates are each separate property accumulated prior to marriage. They own their home as joint tenants together and they have designated death beneficiaries on some of their financial assets.
When the first spouse dies the home belongs solely to the surviving spouse, who can leave it to whomever he or she pleases. The decease spouse’s descendents may receive little to nothing under their step parent’s will or trust. Is this what the decedent intended?
Alternatively, if the house were the decedent’s sole and separate property (not a joint tenancy asset) then under California’s intestacy laws it would go one-third to the surviving spouse and two thirds equally between the decedent’s two children (presuming neither a will nor a trust pertains). All of them own the house as tenants in common and remain entangled with one another. How well will this work?
Next, the decedent’s financial assets with designated death beneficiaries pass without probate to the named beneficiaries — presuming these were properly
completed while he or she was alive, competent and acting of free will.
The remainder of the estate, including any accounts without beneficiaries,
passes one third to the surviving spouse and two thirds amongst the decedent’s own children. Was this division intended?
Moreover, if the gross value of the property passing to the children exceeds
$150,000 then the children need to open a probate for their inheritances. Neither the distribution scheme nor the probate is typically what the decedent would have desired.
By contrast, a well conceived estate plan protects the decedent’s loved ones and does not put them in mutual opposition, so they can live without mutual entanglement. The decedent would most likely have utilized a trust and distributed his assets without probate in a manner that resulted in stepparent and stepchildren owning separate assets (i.e., without co-owning any properties). In our example, the decedent might have left more financial assets to his or her children because the house went to the surviving spouse, or vice versa if the house went to the children instead. Life insurance can ensure that the surviving spouse or children, as relevant, receive the necessary cash.
Many times the decedent’s trust provides his/her surviving spouse with a life interest in all the trust assets and the right to invade the principal as needed in order to supplement his or her other resources, and the remainder going to the deceased spouse’s children at the surviving spouse’s death. Is this desirable?
If the surviving spouse as trustee administers this provision then friction is likely between the stepparent and stepchildren over the step parent’s invasion of the principal. Often the step parent uses the deceased spouse’s resources as much as possible because they don’t care what happens to the stepchildren’s inheritances.
The foregoing could be remedied in various ways. Perhaps a trusted neutral third party trustee could administer the trust; or the surviving spouse be given only limited rights to invade principal with the approval of a third party.
Lastly, the best solution for given family’s particular situation varies based on their resources, needs and objectives. The assistance of both a qualified estate planning attorney and a financial advisor should be sought in developing, evaluating and implementing the solution.
“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”