Are you in a second marriage? Do you have children from your first marriage and have or are planning to have children with your new spouse? Is your new spouse much younger or older than yourself? How you care for your present spouse and your children from different spouses can be challenging. In blended families each spouse may have a different goals. We at East Bay Probate provide the assistance you need to help you decide how each spouse will provide for the other, how each spouse will provide for children born into the new relationship and how each spouse will provide for children from previous relationships.
Some of our client’s concerns include having their assets under the control of the step-children instead of their biological children. Other concerns include not having enough money to go around, avoiding assets coming into hands of the ex-spouse, ensure that their children will not lose their inheritance in the event of a divorce, being thoughtful about what may happen to an inheritance if surviving spouse remarries as well as concerns regarding previous divorce settlements, child support payments or prenuptial agreements.
We at East Bay Probate educate our clients about community property laws as well. In its simplest sense, community property is property acquired during marriage such as a house you might buy together. However it also includes your earnings such as your salary and your retirement benefits that you earn during marriage and property paid for with community property earnings and benefits. Community property gives each spouse equal ownership of all property acquired during marriage regardless of how the asset is titled. Even income from separate property may be considered community property. We help our clients figure out what is separate property and what is community property and help them if they wish, re-classify their property interests.
Some of the unexpected roadblock in setting up an estate plan for blended families include, unresolved emotional issues from a previous relationship or experience, current family dynamics interfering with estate planning and just too much information and too many options to consider.
What are some of the mistakes that blended families make when creating their estate plan? They fail to take advantage of each spouses applicable estate tax exclusion amount, they fail to specify from which assets or whose inheritance any estate tax should be paid, they fail to take full advantage of lifetime giving opportunities to reduce the estate and they fail to use an irrevocable life insurance trust to provide an income and tax-free source of cash.
Often times our blended family clients fail to coordinate their beneficiary designations on their bank accounts or retirement accounts. Sometimes our clients still have their former spouse or partner listed as a beneficiary.
We help our clients to make sure they provide for their spouse but to also make sure that their children from their previous marriage receive their inheritance. Common mistakes we see in estate plans created by others is for the client to leave everything to surviving spouse and then expecting the surviving spouse to take care of the client’s children from the previous marriage.
Not a good idea. Why? Even with the best intentions, the surviving spouse can at a later date, perhaps after a new marriage and new family, change their mind after your death. Another mistake is to execute a will that gives everything to the surviving spouse and upon the surviving spouse’s death, the client’s children from the first marriage. However, years after, the surviving spouse may remarry and have a new set of children and then executes a new will and change all the beneficiaries, excluding the deceased spouse’s children from a former marriage. Also, the surviving spouse may have children that have special needs that the surviving spouse wishes to fulfill at the expense of the deceased spouses children. However, if you leave an asset in a Revocable Living Trust, your spouse can’t later leave it to someone else. There are other options as well. Consider a prenuptial agreement to clarify whose assets are whose and how assets will be divided upon divorce or death. Consider a postnuptial agreement. We can help you with these agreements. Consider giving a life estate, a right to use the property for life to your spouse and then your children get property upon surviving spouse’s death. One drawback to a life estate is that the surviving spouse may not be able to borrow money on the property unless all beneficiaries are on the loan. We help you set up QTIP trusts Credit Shelter trusts to make sure your children are taken care of. Also, one can obtain life insurance to make sure their children get something when you die and don’t have to wait for their stepmom/surviving spouse to die before they receive their inheritance.
Then there is the issue of spouses of unequal wealth. We help our clients talk about money and discuss their expectations and values. We can help our clients create a lifetime QTIP or Credit Shelter trusts (created and funded by wealthier spouse) to ensure that their surviving spouse and children are taken care of.
What about spouses of unequal age? Concerns include that if the surviving spouse is much younger, the much younger spouse will receive much more support from the deceased spouses estate, meaning less for children of deceased spouse. Also, children of deceased spouse will have to wait longer to inherit. We help our clients to consider life expectancy of surviving spouse as well as potential friction between surviving spouse and deceased spouse’s children. We can help create a trust for the deceased (older) spouse’s children, suggest that the older spouse make outright gifts to children upon death of older spouse or even buy life insurance and name children of older spouse as beneficiaries. One common and very hazardous planning technique is to put assets in joint ownership between surviving spouse and children of deceased spouse. Do not do this! We at East Bay Probate have heard many sad stories about what happens when such an estate planning device is utilized.
What to do about heirlooms? Give them away during your life or specifically at your death. Don’t leave them to your surviving spouse to figure out. If you have given away gifts in the past, make a list of those gifts and your intentions for future gifts. You might consider giving a life estate in an heirloom and then allowing that heirloom to pass to others upon the death of the life of the estate. Lastly, we suggest that our clients might have their beneficiaries tag the heirlooms they wish to inherit before the older spouse dies so everyone is clear as to who wants what.
There are many challenges facing spouses with blended families. We at East Bay Probate & Trust Administration have the experience and knowledge to help you navigate these difficult waters. With clear communication and being in touch with your emotional sensibilities we can help you create an estate plan that takes care of everybody you love and care about in your life.