I asked David, a lawyer and expert on estate planning to write an article to help other blended families out there know how to plan.
He wrote the following: Blended families are common this day in age when nearly a quarter of all marriages are a second marriage for at least one of the spouses. This raises some interesting planning issues. Often the new spouses would like to make sure the assets each brought into the marriage are passed on to their own offspring and not the other’s kids. Spouses may also want to make sure the survivor of the two is provided for while still preserving an inheritance for their own children and preventing assets from transferring to certain individuals. It can get complicated but with thoughtful and careful drafting, a plan using a will, a trust, and other tools, can be created to address these concerns.
Consider this scenario which might sound like a TV show but is not so unusual.
Dad (call him "Mike") intends that his boys get 75%, divided equally, of his estate when he is gone but also wants to make sure his spouse ("Carol") is cared for if she survives him. Mike is fond of his step-daughters (Carol’s kids) so he wants to set aside 25%, split equally, for them as well. Complicating matters, Mike owns shares with his business partners of an architectural firm. Mike wants to give his partners the right to purchase his shares when he passes away.
If Mike does not take steps to implement these estate planning goals, it is likely that upon his death, his boys will receive nothing, his step-daughters will receive nothing, and his partners will have Carol as their new business partner. And, if Carol remarries without doing any planning of her own, it is possible all of her and Mike’s estate could end up with people Mike never knew! Is that what Mike wants? Is that what the boys and girls want? Is it even what Carol wants? Certainly it is NOT!
Mike needs to do some planning. He should 1) establish a trust that provides for Carol while she is alive and then distributes his assets to his sons and step-daughters, and 2) set up a buy-sell contract with his partners so they can have the right to purchase his shares of the business (and vice-versa). Through the mechanics of the trust, Mike can direct that his estate be used to care for Carol. The interest on the trust investments may be designated for her, and even the principal if necessary, until her passing. He can ensure the remaining estate is divided between the boys and girls just as he desired. And through the business contract, and the right financial mechanisms in place, he can help his partners preserve continuity at the firm and control ownership.
Even if there are differing circumstances than those mentioned above trusts, wills, and other legal documents can help in arranging matters of estate.
Second marriage spouses would do well to contemplate these kinds of issues as they bring together two families. Thoughtful planning can help preserve peace and harmony in the family and among the interested parties.
Thank you David!