16 Jun Estate Planning With Blended Families, Part 1
At Phelps LaClair, we understand that blended family estate planning is often a complex challenge. In our 40+ years of existence we have helped many families navigate how to protect assets, plan for the possibility of long-term care needs, and determine how to distribute the estate to beneficiaries when the time comes. With blended families, the estate planning situation takes on added dimensions.
When a couple marries later in life, they bring their existing families into the marriage. If each spouse has children from a prior marriage, what happens to the estate when one spouse dies? Without a well-designed estate plan, it is all too possible to end up with a Cinderella scenario. In that story, when Cinderella’s father died and the estate passed on to Cinderella’s stepmother, who proceeded to essentially enslave the young girl. She then poured out the deceased father’s wealth on her own daughters, leaving Cinderella in rags and depression. This is not a simple fairy tale; this is a valid concern that must be addressed in the estate plan.
If the estate plan is poorly drafted, it will pass all of the assets to the surviving spouse at the first death, without restrictions. At that point, the surviving spouse can disinherit the deceased spouse’s kids and redirect all of the money to his/her own children. A proper estate plan will have protections that prohibit the surviving spouse from changing the plan after the first spouse dies, so the deceased spouse’s children can share equally in the estate.
There is strategic beauty in a properly designed trust. For instance, it is entirely possible for a Revocable Trust to include an Irrevocable Trust that comes into effect upon the death of the first spouse. In this case, a revocable trust can provide both protection and flexibility without relinquishing control of the estate, as long as both spouses live. When a spouse dies, their share of the estate goes into an irrevocable trust which can provide income to the surviving spouse during their lifetime.
Because the trust is irrevocable, the surviving spouse cannot change the plan, and the deceased spouse’s kids receive periodic accountings so they know the assets are being kept secure during the surviving spouse’s lifetime. When the surviving spouse dies, the assets in the irrevocable trust must pass to the deceased spouse’s children and stepchildren as determined by the terms of the trust. This arrangement would have really helped Cinderella.
Don’t Settle for Fairy Tales
Our experience in designing blended family estate planning plants us squarely in the camp of reality. As we have helped others, Phelps LaClair is ready to help your blended family with an estate plan that offers protection for your family estate in the years to come. Come see us for a free consultation. And don’t procrastinate, because you never know . . .