Couples face challenges with planning estate for second marriage

Napierville, Illinios, estate planning attorney Richard W. Kuhn published the following incisive article in the September 16 edition of the Napierville Sun. It is very worthwhile reading for anyone in a blended family.

Our greatest challenge is planning the estate for second marriage clients. The blended family carries with it a number of competing concerns as we prepare wills and trusts to meet their needs.

If the couple is financially sound with adult children from their former marriages and have a prenuptial agreement, our task becomes fairly easy. The challenge comes with the scenario wherein the surviving spouse would need the assets from the first to die, yet the first to die would ultimately want for his or her children to inherit once the surviving spouse passes.

The problem with leaving all of the assets to the spouse is that the spouse is under no legal duty whatsoever to include the children of the deceased spouse in his or her will or trust. The children of the first to die become disgruntled when their relationship with their step-parent begins to fade for fear they will never inherit anything from their parent. Invariably they feel that their parent would never have intended the inevitable result.

By way of illustration, let’s assume that Tom has two children from his previous marriage, Terri and Tim. His wife, Julie, has two children from her previous marriage, Jack and Jennifer. Should Tom’s will leave his assets to Julie? What about Terri and Tim? What should Julie’s will say? In such a scenario, there are several options.

We explain the options to our clients as spectrum ranging from complete control of the assets from the grave to little or no control. The first-to-die spouse can control the assets by giving the surviving spouse lifetime rights over the assets, but when the survivor dies, the remaining assets must pass to the children of the first to die. This can work well for those children, but the surviving spouse often is uncomfortable with the feeling of being controlled.

The other end of the spectrum would be to simply leave the assets to the surviving spouse and trust that the survivor would provide for the deceased spouse’s children in his or her trust in the future. While this latter option sounds nice, often the relationship between the stepchildren and step-parent fades as years go by and the stepchildren are typically disinherited in the end.

We like to see a hybrid approach taken. First, using our example, we recommend that Tom’s estate plan provides that Terri and Tim first be left some amount outright and then provide the remaining assets to Julie – some restricted and some not restricted. The assets typically not to restrict would be the marital residence and retirement assets.

Life insurance proceeds and other investment liquid assets could pass to a “QTIP” trust whereby Julie could withdraw funds from this trust for the rest of her lifetime, but at Julie’s subsequent death, the remaining QTIP trust assets revert back to Terri and Tim. “QTIP” stands for Qualified Terminable Interest Property and was created by Congress in early 1980s.

Each and every case is different but perhaps some combination of the above should be considered when the difficult challenge of planning the estates of the blended marriage is encountered.

Richard does a good job of explaining some of the pitfalls and some of the possible solutions. Planning for blended families is not only an emotional issue for the couple involved but also one that is especially important. The Texas intestacy law isn’t too terrible (if you don’t think about estate taxes and asset protection) for a “traditional” family where all the kids have the same parents. In a blended family, Texas intestacy laws can be a nightmare for the survivor and a windfall for the lawyers. And the KISS principle doesn’t work for blended family estate planning either. A “simple” will is very likely to lead to somebody’s kids being disinherited! Don’t overlook the importance of thoughtful, comprehensive planning if you are in a second marriage or your spouse has children that are not yours.

If you’re in a blended family and concerned about your children, give us a call.at 330-9802. Make an appointment for a Family Wealth Planning Session with me to explore your current plan and whether it meets your needs and your spouse’s needs. We’ll be glad to hear from you! Our standard charge for a Family Wealth Planning Session is $750, but we will waive it for anyone who calls or contacts us through this web site within 10 days of the date of this blog posting.