Estate planning for complicated modern families
By Barbara Craig, Attorney at Law
Because second marriages (and subsequent marriages) tend to have inherent complications, estate planning in these situations can often be complex. In order to ensure that the intentions and desires of the deceased marriage partners are carried out upon their respective deaths, developing a comprehensive estate plan is critical.
The challenge of blended families
Blended families present unique challenges, especially when there are young children in the family. To protect children from difficulties which may arise out of second marriages, some possible solutions are making the children the primary beneficiaries of any life insurance policies, placing certain property under joint ownership with the children, or creating a trust. All of these solutions have their associated limitations, advantages, and disadvantages. But in general, trusts are the most powerful and flexible tool for managing the disposition of property and other assets upon one’s death.
Trusts for blended families
There are several types of trusts which can provide for one’s spouse and/or children. Through a living trust, one can gift real property to the children while still providing benefits derived from that property – such as rental income or occupancy – to the surviving spouse.
Irrevocable trusts can be used to specify that certain assets go to particular children. The primary benefits of irrevocable trusts are:
- The trust agreement is not a public document.
- Assets within these types of trusts are protected from inheritance claims by the spouses of adult children who are beneficiaries.
- Irrevocable trust assets are also protected from creditors.
- These types of trusts are considered to be finalized estate planning decisions which are very rarely undone.
The importance of being specific with respect to the distribution of particular property items and financial assets is that a lack of specificity often results in tension and disappointment when designated heirs do not receive a particular item or a share of inheritance they believe or were told they would receive.
Powers of attorney and advanced healthcare directives
Another consideration which is particularly important for blended families is creating a power of attorney (POA) naming a designated person to make healthcare and/or financial decisions in the event one becomes incapacitated. It is also important to revoke any previous POAs which no longer apply. For example, a 65 year old man may prefer that his adult son from his first marriage make any important medical decisions, rather than his third and current wife. But under California law, if no one else has been named attorney in fact via a POA, medical decisions would be left up to the current spouse.
Advanced healthcare directives enable a person to express their medical preferences in a written legal document. This document communicates important details to medical providers — such as organ donation status, desired end-of-life care, do-not-resuscitate (DNR) orders, and funeral arrangements — without the need for medical practitioners to rely on family members to accurately communicate the patient’s wishes, or worse, to fight over critical healthcare decisions.
Pre-nuptial and post-nuptial agreements
In some second marriages, a pre-nuptial agreement may be advisable, and this need may extend to estate planning to enable an individual to designate specific personal assets for disbursement to existing children vs. possible future children. Similarly, a post-nuptial agreement drafted at the dissolution of a marriage may also be a useful tool in estate planning.