Estate Planning for Blended Families

Categories: Legacy

A marriage counselor friend of mine recently said that only 25% of households in some areas are made up of single people and traditional nuclear families of once married couples with their own children. The other 75% of households make up the rest of unmarried couples or remarried couples following separation, divorce or death, with children from more than that relationship coming from prior marriages or other relationships.

Estate planning for these step or blended families becomes vital to make sure that ownership of assets and designation of beneficiaries, as well as wills and trusts are arranged so that assets flow in the direction the person wants them to. In the absence of proper planning, assets will flow to the wrong people, and conflicts will ensue, including costly legal battles. In the wake will be harmed relationships and perhaps money not available to care for people that may have needed it.

I have seen this happen many times, especially to elderly people who remarried later in life. For example, let’s say Bill and Dorothy Welloff have been married 50 years, have accumulated several hundred thousand dollars in retirement savings and other investments, and own a very nice home. They could easily have a net worth of $1,000,000. For the purpose of this example, let’s say they are in their upper 70’s and Bill dies. The normal I-love-you will and estate planning leaves everything to Dorothy Welloff, as it probably should. And when Dorothy dies, whatever is left is distributed to Bill and Dorothy’s children, Joanne and Kevin Welloff.

Let’s say Dorothy remarries Bob Broke and Bob has no money but has 2 children from his prior marriage, Linda and Chris Broke. Without thinking or planning too much they change their wills and beneficiaries, and don’t use trusts, and they set everything up to take care of each other should either of them die. What ends up happening most of time, it seems, is that Dorothy Welloff dies first, and all assets flow to Bob Broke; and even though Dorothy’s wishes were to have the assets left to Joanne and Kevin Welloff after Bob Broke dies, they all end up in the hands of Linda and Chris Broke. This tragedy seems to happen more often than it should, and it could be avoided by proper ownership of the home, and proper directions for the flow of assets through a trust to provide some assets for Joanne and Kevin Welloff right away, income to maintain Bob Broke in a decent lifestyle, and the remaining assets at Bob’s death for Joanne and Kevin Welloff.

If you have a blended family, your situation is more complex. Take time now to make good plans. If your parents have remarried and the example above may apply to them, try to talk to them. This can be a very delicate situation. Perhaps show them this to break the ice. A note to Mom or Dad: your children are not doing this because of greed, but because they want you to be aware of what may happen if proper planning doesn’t take place. As good stewards and managers of money you have worked a lifetime to earn and accumulate, you should make the time and spend a little money to make good plans with your attorney; then follow the wise and thoughtful interests and needs of Dorothy, Bill, and Bob so that assets are ultimately distributed fairly, according to what Dorothy and Bill would have originally wanted. However, you should be mindful of Bob’s needs as well.