Estate Planning for Blended Families

One of the many complications to consider in estate planning is a “blended family.” This term applies to families where people have remarried and have children from previous relationships.

Many people entering into a blended family already have a will or an estate plan created in a previous marriage, but they fail to update it. But equally, many people have no estate plan at all. Whenever someone dies without a clear plan for their estate or with an outdated plan, their estate will likely end up in probate court. Probate means that the court will determine the distribution of your assets. It’s often a long, expensive process that far too often results in battles between family members, especially within a blended family.

Just as importantly, in a probate situation, it’s often years before your loved ones end up inheriting your assets. New York typically takes up to 16 months, but we’ve seen plenty of probate cases that go on for three years or more. 

Second Marriage Inheritance Issues: A Case Study

Let’s consider the case of Jack and Sofia. This is the second marriage for both of them, and they have a minor child together. Jack has two grown children from a previous marriage. The couple has a joint home together, rental property, life insurance, and retirement plans. However, Jack also has some assets that he holds in his name only – a piece of unimproved property and an investment account.

Jack loves the kids from his first marriage and wants to make sure everyone is remembered in his will. He has essentially three kinds of property to consider when planning the estate of a blended family which we’ll consider for Jack and Sophia. 

• Community property
• Separate property 
• Commingled assets 

Let’s say Jack and Sophia want to purchase a bigger house. To afford this, they sell Jack’s individually-owned piece of land, which Jack’s prior children were set to inherit. They also sell their jointly-owned house. They commingle those two funds to buy their bigger house. What if Jack never updated his trust from his previous marriage? If Jack dies now, are his kids from his first marriage entitled to part of the new house since they were previously set to inherit his personal land? What if Jack also commingled his individually owned investment account with Sophia? You can see the kinds of legal confusion that will now result. 

Jack’s first mistake was that he didn’t update his estate plan when he married and again when he had a child with Sophia. Any major life event – marriage, divorce, birth, etc. – should set off alarm bells in your head to update your estate plan. 

There is a way to structure your estate so that your money—and your heirs—are protected. An expert Long Island estate planning attorney can transparently help you create an equitable estate structure. Here are some items that should be on your checklist if you’re going to be entering into a blended family situation. 

Consider Prenuptial or Postnuptial Agreements

If you’re going to be entering into a blended family through marriage, prenuptial or postnuptial agreements can be valuable tools. The purpose of these types of agreements is to protect assets acquired before the marriage, establish the distribution of assets in case of divorce or death, and ensure the preservation of intended inheritances for children from previous relationships. To be valid in New York, these agreements must be:

• Written: The agreement must be in writing and signed by both parties. 
• Acknowledged: The agreement must be acknowledged or notarized in the manner required for a deed to be recorded. 
• Fair and voluntary: Both parties must fully disclose their assets and enter into the agreement voluntarily. 
• Signed before marriage: The agreement must be signed before the couple marries and takes effect immediately after. 
• Enforced during divorce: The agreement can only be enforced during a divorce action. 

Beneficiary Designations

One crucial aspect of estate planning for blended families is defining beneficiary designations. When you enter into a new family situation, it’s important to review and update beneficiary designations on retirement accounts, life insurance, and other vital documents. If you fail to do so, ex-spouses or others you no longer wish to have beneficiary status may receive a significant portion of your estate. 

Wills and Trusts

A well-drafted will is the keystone of any estate plan. For blended families, it is vital to clearly set forth the distribution of assets among biological and stepchildren. Creating testamentary trusts is often a good way to protect and manage assets for minor children or for those children who are not yet ready to manage inherited money. 

In situations where death occurs without a will or trust in place, statutory intestacy rules may place a significant portion of the deceased spouse’s estate with the children from the previous marriage. This can happen even if the prior children are now adults and have less need for the assets than the spouse and minor children of the current marriage. Where the prior children are minors, an ex-spouse might be able to gain control of the assets. At the very least, each spouse in a blended family should have a will. Without one, assets will more than likely be distributed to heirs in a manner contrary to what the deceased spouse would have wanted.

A properly designed and adequately funded trust, or a combination of trusts, is a much better approach than a will for blended families. This approach can provide for the surviving spouse while ensuring a portion of the assets goes to children from the previous marriage. 

Contact Davidow, Davidow, Siegel & Stern, LLP

Estate planning for blended families in New York State is vital to avoiding family conflicts and asset mismanagement. While these issues are often difficult to discuss with ex-spouses and prior children, they are critical. Start the process today by consulting with a Long Island estate planning attorney who can guide you through the intricacies of estate planning and help you create a comprehensive plan tailored to the unique needs of your blended family. Contact Davidow, Davidow, Siegel & Stern today.