Keeping it “Brady”

Blended families face special concerns when it comes to estate planning, but not all blended families are the same.  In some, like the Brady Bunch, each spouse has children from a prior marriage. In others, only one spouse has children.  Sometimes the spouses also have children together–perhaps in a different generation from the children of the prior relationship(s). An earlier marriage may have terminated by death, or it may have terminated as the result of divorce. The dynamics may be different if an ex-spouse is still living and if the remarriage occurs later in life when one or both spouses have adult children.

As we approach year-end, here are five estate-planning considerations that are important for everyone, but especially so when you’re advising blended families.

Prenuptial Agreements

Before the wedding, your clients should consider a prenuptial agreement. A prenuptial agreement is one of the best ways for prospective spouses to protect their children by establishing the property rights and financial responsibilities of each party during the marriage and by defining the rights of a new spouse in the event of divorce or death.  In the event that a prenuptial agreement isn’t entered into, they can consider a postnuptial agreement that serves the same purpose but is executed after the marriage.

Beneficiary Designations

Have your clients check beneficiary designation forms to make sure that a former spouse isn’t still named as the beneficiary on life insurance, retirement plans and annuities.  Also, they need to be mindful of beneficiary designations in favor of minor children. When a parent dies without planning, the surviving parent usually becomes the legal guardian of the minor child’s property.  For most divorced parents, having an “ex” in charge of the minor child’s inheritance may be intolerable.  Leaving an inheritance to a minor child in trust with a trustee of your client’s selection ensures that an “ex” won’t control the inheritance.  With regard to the new spouse, for plans that are governed by the federal Employee Retirement Income Security Act, the surviving spouse has mandatory rights unless he waives those rights in writing after the wedding.

Jointly Owned Property

When property is owned as joint tenants with right of survivorship (or as tenants by the entirety when the owners are married), on the first death, the surviving co-tenant becomes the sole owner of the property.  It’s therefore crucial that spouses in a blended family are thoughtful when titling property, especially if considering adding a new spouse to the title of an existing separate asset. If care isn’t taken, your clients may unintentionally disinherited children.

Medical and Financial Directives

Most of our clients will become disabled for some period prior to death. All clients over the age of 18 should therefore execute: (1) a health care proxy to appoint an agent to make medical decisions during a short- or long-term period of incapacity, (2) a living will to set forth one’s wishes regarding life sustaining measures when terminal, permanently unconscious or suffering from irreversible brain damage, and (3) a power of attorney to appoint an agent to make financial decisions. Not only do these medical and financial directives need to be updated to replace a former spouse, but also, your clients in blended families should carefully consider whether the more appropriate agent is the current spouse or an adult child from a prior relationship.

Wills and Trusts

Revising an estate plan is important following a life event such as marriage, divorce or the death of a spouse. For example, under New York law, dispositions to a former spouse under a will or revocable trust (and certain other instruments) are automatically revoked on divorce, judicial separation or annulment (but not, as one might imagine, on the commencement of a divorce proceeding). This also applies to the appointment of the former spouse as executor, trustee, guardian, agent or attorney-in-fact. However, in New York, dispositions and appointments of the former spouse's relatives aren’t automatically revoked. In blended families, leaving all property outright to the surviving spouse is almost never a good idea. Instead, leaving property in trust can provide for the surviving spouse’s needs while ensuring that the remaining trust assets pass as the deceased spouse intended on the surviving spouse’s death. In advising clients about using trusts, be aware of the conflicts that naturally exist in a blended family between the spouse and the remainder beneficiaries. Clients should choose independent or corporate trustees to minimize discord between the surviving spouse and the children who ultimately inherit. Also, in blended families, provisions regarding personal property distributions often need to be very detailed to make sure that family heirlooms, even those of little monetary value, pass to the appropriate people.

Finally, remember that when one spouse dies, the survivor can change his estate plan and often has the ability to redirect much of the estate planning of the predeceased spouse. When doing estate planning, members of blended families should be realistic about the relationships among the spouses and the children of the current, as well as prior, relationships to ensure that everyone’s needs and expectations are met. This can reduce dissension among family members and help ensure, as much as possible, that they’re all one happy Bunch!