The Keys to Blended Family Estate Planning

Posted on October 9, 2019 by Eric C. Reutter

More and more often, families define themselves as “a blended family” when one or both of the parents have children from a prior marriage. This creates unique issues in the area of estate planning, as one of the most common goals in blended family estate planning is to provide for both the current spouse of the marriage (“the surviving spouse”) and also the children of the prior marriage.

With these goals in mind, a traditional estate plan of “all my property to my spouse if my spouse is living at my passing, or all my property to my children equally, if my spouse is not living” may not be a good fit for spouses in a blended family. With this traditional planning approach, a spouse in a blended family might worry about what would happen if the relationship between the surviving spouse and the non-biological child were to sour, so that the spouse leaves nothing to children of the prior marriage. Or, if the surviving spouse were to lose the inherited assets through either debt or mismanagement of the assets, the same result might occur.

To address these concerns, spouses in a blended family will often either use a marital testamentary trust or “gift splitting” approach. A gift splitting approach is the simpler method, and it involves dividing testamentary gifts between the surviving spouse and the biological children (for example, 75% to surviving spouse, 25% to my child). There are several variations of this splitting technique, whether it be fractional or using specific assets (i.e home and retirement accounts to spouse, investment accounts to child). While this approach may be simple, it can also be difficult for a spouse to decide exactly how to make these allocations so that both the surviving spouse and the biological child will have enough.

The second, and more common, planning method for blended families is marital trust planning. With marital trust planning, when the first spouse passes away, his/her assets are directed into a trust. The trust is then used to support the surviving spouse during the surviving spouse’s lifetime (for example, for that spouse’s health, education, maintenance, and support) and, upon the death of the surviving spouse, the trust would distribute all the remaining assets to the first spouse’s descendants/family members. By using this trust method, the first spouse to die can have assurances that the trust is there to care for the surviving spouse, and that the remaining trust assets will go the biological child, or children, at the spouse’s death. A common variation on this method involves also gifting to the children at the first spouse’s death, simply because the surviving spouse may live a good deal of time before the marital trust terminates at the death of the surviving spouse.

There are of course many nuances to explore when drafting blended family planning estate planning documents, but the key to approaching blended family estate planning is to understand the potential downsides of a traditional estate plan, and then work with an estate planning attorney to customize one of the options described above to best fit the blended family’s situation.