Estate Planning for Blended Families
The state planning we’ve done for clients with $1 billion is often easier than the planning we do for clients who have blended families and far less in assets. But truth be told, the reasons why estate planning is so important for blended families are the same reasons why this is such a rewarding part of our estate planning practice.
The planning varies, a lot. There is a veritable cornucopia of factors that effect each couple’s plan. How old are your children? How long have you been married? What do you and your spouse’s current and future assets and income look like? What about your kids’ current and future assets and income? Are certain assets, like a house for a spouse or business for the kids, important to consider? Clients will often ask, “what do other people do?” Sometimes, they leave each other everything with no strings attached, and sometimes they disinherit each other and leave all their assets to their own children. Most often, though, the solution is somewhere in the middle.
The best solution requires an experienced estate planning attorney who can think creatively. Experience can show what techniques work well, and what don’t. A lot of techniques look good on paper, but often work horrendously IRL (that’s “in real life,” for anyone who isn’t up-to-date on the slang used by the current whippersnappers).
As an example of a common problem we see, a husband and wife who each have two children prior to the marriage will set up a plan that leaves all of their assets to each other, and at the second death, divide the assets equally among the four children. That might sound reasonable, except that the overwhelming odds are that they will not die together, and, after the first spouse passes, the surviving spouse will have the opportunity to call an audible and revise that plan. There’s a chance (which tends to increase the longer the surviving spouse lives) that all of their combined assets end up going to the surviving spouse’s children.
In order to avoid audibles, or at least narrow the options in the playbook, the majority of solutions will involve a trust. But drafting a trust is an art, not a science. The trust has to balance competing interests. When the trust creator passes, there’s an inherent conflict between what current beneficiaries of a trust (typically, a surviving spouse) want, and what the remainder beneficiaries of a trust (typically, the children and maybe even stepchildren of the trust creator) want. That conflict can stem not just from distributions but also the choice of investments. The trust also has to balance issues related to control. Who gets to fill that all-important role of trustee? Do you have co-trustees? Do you have a trust protector or protector committee who can remove the trustee or whose approval is necessary for certain actions? What would be the grounds for removal, or is it completely within the protector’s discretion? Even if you create a trust that works masterfully during the surviving spouse’s lifetime, do you want your kids to wait until their stepparent passes before they receive assets? If your spouse happens to be closer to your kids in age than to you, this is a particularly important consideration.
The planning needs to remain as simple as possible to work well, since nobody likes an overly complicated estate plan. Again, experience is a great teacher. We’ve learned the best estate plans are simple, but not simplistic. The more convoluted the plan becomes, the less likely it is to work well.
Grace and perspective are key. Any time we’ve met with clients who thought they perfectly addressed their situation, there were some glaring blind spots to the plan (like the possibility that the spouses might not die at exactly the same time). Frankly, estate planning for blended families involves finding the right balance. When we work with clients on these matters, we devote extra time to learning about you and your family so that we can craft a plan that can strike that balance. But don’t be too hard on yourself or your spouse if finding that balance is difficult. Too many spouses in this situation choose to do nothing, which is a huge mistake. If you have questions or want to speak with one of our estate planning attorneys, please feel free to contact us.