Estate Planning for Blended Families

Second marriages – particularly when each spouse has kids from a prior marriage – are fraught with complications that heighten the need for careful estate planning.

When there’s been only one marriage, and when all of the children are the children of both parents, a typical scenario in Minnesota is as follows: The parent who dies first transfers all of his or her assets to the surviving parent. When the surviving parent also dies, their children share any assets that remain.

However, parents in 2nd marriages have worries regarding the transfer of their wealth that differ from 1st marriage situations.

To illustrate, assume that Dick and Jane are married to each other and that both have children from a prior marriage. Dick dies, leaving all of his assets to Jane. Jane subsequently updates her estate plan to now give all of her assets, which include the assets that she inherited from Dick, only to her children and not to any stepchildren. As a result, Dick’s children inherit nothing.

Or, an unintended consequence may result if Jane remarries (her 3rd marriage) after Dick’s death, and dies before her new spouse. Her new spouse could take any assets that he inherits from Jane and pass them on to his children only – shortchanging Dick’s and Jane’s children.

Another worry in blended family situations is that Jane, as the surviving spouse, will use all of the money that she inherited from Dick – possibly due to medical bills or excessive spending. Thus, original assets of Dick’s that otherwise may have gone eventually to Dick’s children, would no longer be available for them.

Other potential challenges occur when there’s a rather large age gap or wealth gap between the two parties of the 2nd marriage. If Dick was significantly older than Jane, and if Dick’s children must wait until Jane’s death to inherit, Dick’s children aren’t likely to be happy. Or, the children of the richer parent, expecting an inheritance, may resent the fact that the richer parent’s wealth was transferred to the 2nd spouse.

Alternatively, maybe Jane surrendered some financial support (a/k/a alimony) from her 1st spouse by remarrying, or lost potential Social Security benefits based on the earnings record of her 1st spouse. In this instance, maybe Jane and Jane’s children feel that the inheritance that Jane receives from Dick is “owed” to her.

What is the solution to these issues? There is no perfect plan. Moreover, the estate planning needs of Dick and Jane will change over time as changes occur in their wealth, their health, laws, and family dynamics.

Could Dick refuse to transfer anything to Jane at Dick’s death, thereby protecting assets for his children? Yes, if Dick and Jane sign a pre-nuptial agreement or post-nuptial agreement, properly prepared, in which Dick and Jane waive their spousal rights. Otherwise, Jane, as the surviving spouse, has rights to certain assets under Minnesota law regardless of what Dick’s Will or Trust might state.

Dick’s estate plan could also provide that some of his assets will transfer to Jane at Dick’s death, but that other assets will go immediately to Dick’s children at Dick’s death. The advantage of this strategy for Dick’s children is that they don’t need to wait for Jane to die before they inherit. However, this strategy won’t work well if Jane is left with insufficient assets to cover her basic needs, or if it doesn’t satisfy Minnesota’s statutory requirements for inheritance by surviving spouses.

Another consideration is whether Dick’s children are financially mature enough to wisely handle an inheritance at the time of Dick’s death. Assets that are held in trust for Dick’s children until they reach a certain age (rather than given to them outright) carry certain protections in Minnesota – a potential benefit for Dick’s children.

A popular strategy for 2nd marriages is to use Revocable Living Trusts. Dick and Jane could set up Revocable Living Trusts to provide that Jane, as the survivor of them, is entitled to certain assets, but that other assets would be set aside in trust for Dick’s children to receive at Jane’s death. To provide Jane with some protection, the Trust could give Jane access to assets set aside for Dick’s children if needed for certain basic needs, but not for spending generally.

In sum, estate planning for blended families is more complicated because of certain issues faced by blended families that aren’t faced by other families. Consider working with an estate planning lawyer to custom tailor an estate plan that facilitates a positive outcome for the parents in the 2nd marriage, and for the children of each of them.

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Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305 952-649-9771 bonnie@bwittenburglaw.com www.bwittenburglaw.com