BLENDED FAMILIES
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA
Planning for blended families can be challenging. Blended families are married couples in which one or both spouses have children from a previous marriage or relationship, or they could be families whose children have spouses with children from a previous marriage or relationship. Blended families are fairly common. Fifty percent of all American marriages end in divorce. Sixty percent of remarriages end in divorce. Forty-three percent of marriages are remarriages for at least one party. The average duration of marriages is 7.8 years.
The Problems
A potential problem for blended families is the possibility for children of the first spouse to die to be disinherited. Another problem is the potential delay in the children receiving an inheritance until after the death of their parent’s spouse. Reasons for these problems include the following:
- Disinheritance. The surviving spouse can change his or her Will to leave everything to his or her children disinheriting the children of the first spouse to die.
- Squandering. The surviving spouse might squander the money by spending it foolishly.
- Remarriage. If the surviving spouse remarries, the surviving spouse may change his or her Will to leave everything outright to the new spouse of the surviving spouse.
- Lifetime Gifting. The surviving spouse may gift excessive money to his or her own children during the lifetime of the surviving spouse.
- Long-Term Care. The surviving spouse may use all of the inheritance for his or her long-term care, or even to pay for long-term care for the surviving spouse’s parents.
Potential Solutions
There are a number of potential solutions. The conversation has the potential to be unpleasant, but it is important. Solutions include the following:
- Written Agreement. Premarital and Marital Agreements that include the rights and obligations of the surviving spouse in the estate of the deceased spouse.
- Right to Use and Occupy. In a second marriage, one spouse often moves into the home of the other. The home is not always retitled jointly, nor should it be. The spouse owning the home may want the surviving spouse to have the right to live there for his or her lifetime. This can be accomplished by giving the surviving spouse the right to use and occupy the property. The spouse owning the home could attach conditions to the right to use and occupy, such as the obligation on the part of the surviving spouse to pay the home’s taxes, insurance, utilities, and maintenance expenses, and conditions requiring termination of the right to use and occupy if the spouse moves out of the house or abandons the property for a certain period of time, or if the surviving spouse remarries or cohabits. Whether the home can be rented or sold and, if so, what happens to the rental income or sale proceeds should be addressed.
- Trust for Surviving Spouse. A trust could be established for the benefit of the surviving spouse. The surviving spouse may be entitled to all or part of the income and to unlimited principal distribution or an annual unitrust distribution (i.e., 4%). Care must be taken to select an appropriate trustee who will be fair in administering the trust. The trustee could be a professional trustee or could be a child from each family. The trust may stipulate that upon death of the surviving spouse the remainder in the trust will be distributed to the child or children of the first spouse to die or in equal or unequal proportions to the children of both spouses.
- Outright Distributions to Child/Children of the First Spouse to Die. If the estate is large enough, a partial distribution of principal could be made to the child or children of the first spouse to die. This is a particularly important consideration where one spouse is significantly younger than the other.
- Spray/Spendthrift Trust. A trust can be designed to benefit the surviving spouse and children. When drafting a Spray/Spendthrift Trust the following should be considered:
- Distributions. The trustee may be permitted to make distributions to the surviving spouse and designated children.
- Death of Surviving Spouse. The trust may stipulate that, upon the death of the surviving spouse, the remainder of the trust will be distributed to the testator’s children from a previous marriage or to children from both marriages.
- No Contest. Including a “no contest” provision in the trust minimizes the risk that the trust will be challenged.
- Irrevocable Life Insurance Trust (ILIT). An ILIT allows a parent to provide for his or her children with life insurance and to use the remaining estate to provide for the surviving spouse. Alternatively, an ILIT could be established for the benefit of the surviving spouse while the remaining assets are left to the children of the first spouse to die.
- Contract to Make a Will. When appropriate, a Contract to Make a Will offers a simple Estate Planning solution. The contract prevents the surviving spouse from changing his or her Will upon the death of the first spouse.