Blended Families and Estate Planning

By Matthew A. Ferri, Esq. Blended families by their nature bring more people to the table. The following are only a few of the big challenges we face when estate planning for a blended family. Your Ex-Spouse A major concern for most divorces is the need to disinherit your ex-spouse. While married to your ex-spouse, you most like designated him/her as the beneficiary of your life insurance policy, a pension plan, 401(K) plan, or similar retirement plan, which was provided by your employer. If you fail to update your beneficiaries and die, your ex-spouse will inherit. Your current spouse and even your children would get nothing from the retirement accounts with your ex-spouse listed as beneficiary. Your New Spouse Most spouses in blended families tend to also "blend" their wealth. This means, spouses commonly title their assets, and designate each other as beneficiaries in retirement plans or life insurance policies. Warning: If you predecease your new spouse and fail to plan, then you may forever disinherit your own children! Upon the death of your new spouse, the assets that you have "blended" will, in all likelihood, be inherited by your stepchildren, or even by your new spouse's next spouse and their children! Your Children In addition to problems raised by not disinheriting your ex-spouse, you may also have guardianship issues. As the surviving parent and guardian, he/she would, most likely, be appointed by the probate court to manage your minor children's inheritance. To make matters worse, what if one of your children should later predecease your ex-spouse? Who will inherit your assets if he or she is single and childless at that time? You won't like the answer! It's your ex-spouse, as the next-of-kin of your deceased child! If you die in a car accident, and your minor children die a week later from the same accident, your ex-spouse could inherit your entire estate through your children. Without a proper estate plan, there can be many unintended consequences after a divorce or with a blended family. Your New Spouse's Children In cases where one spouse has significantly greater wealth, it will be important to discuss openly and responsibly what, if anything, the estate planning documents of the "rich" spouse will provide for the children of the other spouse. This will often vary, depending upon the length of the marriage. There is no "right" or "wrong" answer. The only critical mistake is to fail to address the question all together. Inheritance Protection for Blended Families If you want to disinherit your ex-spouse, protect your own children, provide for your new spouse and children, as well as minimize your estate taxes, you need to make a proper Estate Plan now. You may also want to consider a prenuptial or post-nuptial agreement. These documents can spell out who will be responsible for which expenses after a marriage. You should also carefully craft a Trust to administer the inheritance for your new spouse and your children, appointing a party of your own selection to serve as trustee. That way, even if your children reside with your ex-spouse, your trustee will control the inheritance through the Trust and ensure its use only for your children. Regarding your new spouse, you may wish to create a Trust to provide income and principal (under certain conditions) to your new spouse during his or her lifetime. An arrangement of this type will protect a base of support for your new spouse, even in the event of a subsequent remarriage and divorce. Upon the subsequent death of your new spouse, the remainder of the Trust may pass to the Trust you had created for your own children upon your death. About the Author Matthew A. Ferri, J.D., M.B.A., is the Founder and Principal of Life Focus Planning, a Michigan based estate planning law firm. He is an estate planning attorney with offices in Bloomfield Hills, Michigan and Shelby Township, Michigan. If you have any questions or comments, you can reach Matt at (248) 409-0256 or [email protected]