Estate planning for blended families can get complicated. We can help.

Estate planning for blended families can get complicated. Let's say Client A and Client B are getting married. A has two kids from a prior relationship and B has one kid from a prior relationship. They plan to have kids together. A receives child support from a former spouse. A’s mother also lives with them and helps care for the children. B’s only child works in B’s business and both A and B hope their joint children will one day join the family business as well. A and B have a lot to discuss...

The first thing we would tell A and B about their estate plans is “don’t try to plan for the next 20 years right now.” Trying to plan for too many “what ifs” can cause analysis paralysis. The best practice is to get a plan in place that addresses the “what ifs” of the next three to five years. That’s particularly true for A and B—newlyweds with a newly blended family. That’s why Trusts are living documents—they need to be reviewed and adjusted over time as families, circumstances, and laws change. As long as you are alive and competent, you can amend your Trust. And if you don’t, well, you’ve put the right plan in place at the right time.

Currently, there are minor children involved. Were A to die, A may want or need to plan for the support and care of the children rather than B, who is likely self-sufficient and not dependent on A’s support at this early stage in their relationship. Later, when A’s children are grown and gone, A is more likely to want or need to provide for B.

B currently has to think about B’s business. In the event of B’s death, B may want to see B’s child carry on the business. If A needs an income stream from B’s estate however, an outright transfer of the business might not work. B’s options would include keeping the business owned by a Trust with income paid to A, but with B’s child still running the business and getting a salary. Or, perhaps B can obtain life insurance that would pay A and allow the business to be transferred to B's child.

Life insurance or some other income stream (retirement plans, annuities, etc.) of B are useful here. If A is significantly younger than B, or close in age to B’s child, and B plans to provide for A first, then B’s child, there could be tension. A plan that has a child “waiting around for step-parent to die” can be an invitation to discord (take a look at the step-parent vs. children disputes of celebrities like Casey Kasem, Robin Williams, and Glen Campbell).

If B has a stream of income that can be directed to either B’s child or A with the remaining assets going to the other of them, that can reduce tension. This may give the best hope for a continuing relationship between a child and a step-parent.
In the event of A’s death or incapacity, does the surviving biological parent (e.g. A’s ex spouse) have custody of the minor children? If so, A may not be able to plan for B’s involvement with the children, but perhaps leaving money in Trust with B as the Trustee will at least assure some contact and oversight. If not, A will need to carefully consider whether A’s mother or B should be named guardian of the children.

At a minimum, A will want to get powers of attorney and health care directives for minors that allow for A’s mother and B to take care of the children in an emergency, including making health care decisions for the children if A is not able to.

In the unlikely event A and B should die together, who gets what and when requires careful analysis.

A’s children are younger than B’s one child, and if they have additional children in the future, the age gap will be greater. A and B can consider a “pot trust” that holds all assets in one big pot for the benefit of all children until the youngest child reaches a certain age or graduates from college. The Trustee makes distribution for “health, education, support, and maintenance” of all the children, but is not required to do so equally. This gives the youngest child the same advantages as the older children for whom college, a car, perhaps a wedding, was already paid for prior to their parents’ passing.

When the youngest child reaches the stated age, the trust can be divided into shares for the children and distributed outright or over time when each child hits a certain age. The size of those shares is another area for discussion.

Does B’s child get half and A’s children split the other half? If A and B have a child together does that child get a portion of each half? The short-term answer is likely to be much different than the answer 20 years from now.

The decisions to be made will necessarily take into consideration whether there is a large disparity between the assets of A and B, and there are many formulas and approaches to deciding what’s “fair.”

We would say to A and B what we often say to clients: This may be the first time you’ve had to design your estate plan, but your lawyer has done hundreds if not thousands of plans. No matter how complicated you may think your family is, it’s our job to help you figure out what works best for your family, to provide some options for you, and get it all documented.
Then A and B can concentrate on the fun parts of their upcoming Brady Bunch life together. And we’d also say congratulations and best wishes! And we’ll see you again in three to five years.

If you have estate planning questions, give us call at 253.858.5434. We represent clients throughout Washington and Idaho and are available to meet in person, by phone, or via video conference.