Estate Planning for the Blended Family
In first marriages, a couple generally have identical goals for their estate planning: take care of the surviving spouse for as long as he or she lives, then distribute what’s left to their children.
But second marriages can be different. The blended family – his children, her children and sometimes their children as well – makes for more complicated planning. Each spouse may have separate assets as well as their joint, community assets. Both usually want at least some of their assets to go to their own children after they die. At the same time, they want to make sure the surviving spouse has enough to live on.
With a blended family, a couple has to put a plan in place if they want to be sure their goals are met. This won’t happen automatically.
Think about one of the most famous of blended families – the Brady Bunch. What happens if Carol and Mike have all their assets in joint tenancy and don’t have a will or trust? If Mike is the first to die, Carol will get all the couple’s joint assets. But then what happens when Carol dies? Without a will or trust, state law steps in. Arizona law says that Carol’s children get her assets. That means the three girls get everything, and Mike’s boys are left out. I’ll leave it to your imagination on whether those girls are going to share the wealth. If Mike and Carol’s plan was to divide everything between all six of the kids, the failure to plan made sure that didn’t happen.
What if Mike had a rental property that was in his name only and not in joint tenancy? Again, state law will step in if he doesn’t plan. Arizona law provides that on Mike’s death, Carol inherits half of Mike’s sole property and Mike’s sons get the other half. If Mike intends for Carol to get it all, he has to plan for that.
Mike and Carol may want to be sure that the survivor of them is well cared for, but they also want to be sure their own kids share in what’s left after they are both gone. They can plan for this in their trust. The trust can provide that some of their assets go to an irrevocable trust at the first spouse’s death. The surviving spouse is the beneficiary during his or her lifetime. The trust, however, says where the assets left in the trust go when the survivor passes, and the survivor can’t change that. This way the first spouse to die is assures that some of the assets will be distributed to his or her children when the second passes.
What about Mike’s 401(k) and Carol’s IRA? If Mike is the beneficiary on Carol’s IRA, on her death, he rolls the IRA into his own name and can designate whoever he wants as a beneficiary. If Carol wants to be sure Mike doesn’t designate a new wife as the beneficiary after Carol passes, Carol has to plan for that. She can create a Standalone Retirement Trust and designate it as her beneficiary. The Retirement Trust can provide that Mike receives lifetime income from IRA in the Retirement Trust, but Carol gets to say who gets it after his death – whether it’s her kids or all six kids.
There are many factors going into estate planning for the blended family. It’s a good idea for the blended family couple to discuss their individual estate planning goals together. If they are similar, then the task may be somewhat easy, and they can plan with the same attorney. If their goals and ideas are considerably different, separate attorneys may be needed, and perhaps even separate trusts.
Most couples do have one common goal, which is doing the right thing for everyone involved: themselves, their spouse, their children, and their spouse’s children. A good estate planning attorney can help put together a plan that accomplishes your goals. If you would like my help, call me at (602) 375-6752 or contact me on my website, www.libbybanks.com.