Estate Planning Tips for Blended Families

April 3, 2020

We tell our clients that when it comes to estate planning, the government already has a plan for your money. In the case of a couple with a lot of liquid assets and one child, that plan is simple: your child gets all your money, minus estate tax. That estate tax is up to 40 percent, depending on the size of your estate, which means your children might be inheriting a lot less than you intended to give them.

But families aren’t that simple. As of 2015, less than half of children lived with both of their biological parents, and fully one in six children in the US lived in what the Census calls “blended families” — families with stepchildren, stepparents, step-siblings, or half-siblings. Essentially, if all of the children in the house aren’t biologically related to both of the adults and all the other children, your family is considered “blended.”

How Inheritance Works in Blended Families

Without a will, your assets will fall to your biological children, no matter how close you feel to your stepchildren. Surprisingly, more than half of American adults don’t have a will, and accidents happen all the time — young people die too, and they still need a plan for what happens to their money.

Unfortunately, a will doesn’t solve the problem either, since it can be changed. Imagine a couple, Spouse A and Spouse B, each with a biological child from a previous partner. If one spouse dies, some of their assets go to the other spouse, while some go to each child. The second spouse, however, can easily change their will so that their remaining assets go only to their biological child, not their stepchild. A will is only binding at the moment of the signer’s death — it can be changed any number of times up to that point.

Better Alternatives to a Simple Will

If you’re raising a blended family, especially one where one parent is the primary breadwinner, you don’t want to leave anything to chance. It can be uncomfortable to bring up topics that imply that you don’t trust your spouse, but it’s better to be prepared than to leave your children or stepchildren with an uncertain future. Here’s what you can do:

  • Take advantage of trusts. There are a lot of different kinds of trusts that might work for your family and your assets, but the most important thing to consider is an irrevocable trust — one whose terms and trustees can’t be altered after they’re set up. You can name all your children, biological and otherwise, as benefactors of an irrevocable trust, then will your entire estate to that trust, thus ensuring that they’ll all get an equal piece of the pie. Or you can create two trusts, one for your spouse and one for your children, and avoid some estate tax to boot. You can even buy assets like a house or stock portfolio in the trust’s name rather than your own — if you never own it, it’s not part of your assets in your will.
  • Choose a responsible trustee. When you’re gone, someone will have to make decisions about what to do with the assets in the trust. Should they be cashed out or left to accrue additional value? Who should get control of which assets? If you envision tension between your spouse and children, it’s a good idea to name a third party (like a family attorney) to manage the trust instead.
  • Anticipate that your spouse will remarry. You trust your spouse completely, but there’s a chance that the next person they marry will feel entitled to some of the assets that your spouse inherits after your death. They may even have children of their own, further complicating the issue. Setting up a trust or series of trusts ahead of time will protect your assets (and your children’s) from such an unforeseen development.
  • Consider leaving some of your assets directly to your children. Traditionally, one spouse’s assets go to the other spouse. When the second spouse dies, assets are inherited by the children. If you want to bypass that process, you can leave a portion of your estate directly to your children. That way, any change of heart that your spouse has between your death and theirs will be less consequential.
  • Have a serious talk about health care and power of attorney. It’s not much fun to think about the end of your life, but a day may come when someone has to decide whether to take you off of life support or pay for expensive cancer treatments. When that day comes, who do you want making that decision? Who do you want to have visitation rights to see you in the hospital? Make these decisions ahead of time and put them into writing to save yourself and your family some serious conflict down the road.

Having Difficult Conversations

Planning for the end of your life is a somber topic, which is probably why so many people put off estate planning — it’s just too sad to think about. But these are some of the most important decisions that you’ll make in your life, affecting your legacy and your children’s lifestyles forever, which is why it’s important to give them careful thought.

At First Western Trust, we have the experience and expertise to walk you through all of your financial options — even ones you might not have thought of. We’ll take into account your assets, your priorities, and your individual goals for what happens to your wealth after you’ve passed on, and we’ll create a plan that’s personally tailored for you. We can’t make the conversations any less uncomfortable, but we can give you the peace of mind that you’re doing the best thing for your family.


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