Planning for Blended Families

October 13, 2021 Ian Hull Estate Planning Tags: , , 0 Comments

Blended families – a family where some or all of the children in the family are not the natural or adopted children of both spouses – are becoming increasingly common. While most individuals are attuned to the emotional difficulties that could arise when blending two families, many might not consider the estate implications that arise upon blending. It is prudent to revise an estate plan upon blending families in order to ensure any children from a previous marriage are not inadvertently disinherited.

While many married individuals might hold assets jointly with their partner so as to minimize tax consequences upon death, this might not be wise when estate planning for a blended family. Additionally, implementing a “standard” Will, whereby upon death of the first spouse, all assets are left to the surviving spouse, could result in an unintended disinheritance of children from a previous marriage. For example, if the surviving spouse dies intestate, then their assets would pass to only their children, not their step-children.

One way to avoid the aforementioned situation would be to create a testamentary spousal trust. Under a testamentary spousal trust, a testator can provide for a spouse during their lifetime, while ensuring that the capital of the assets are preserved for children from a prior marriage or any other beneficiary the testator chooses to benefit.

Consider the following scenario:

Jack and Jane, two divorcees, are planning to get married. Both have children from their previous marriages. Jack wants to ensure that, in the case he dies first, Jane will benefit from the income generated from his assets, but that the capital will ultimately go to his children from his first marriage. Jane wants to ensure a similar outcome if she dies first.

In order to ensure that Jane is financially supported during the remainder of her life, Jack could set up a testamentary spousal trust in which Jane is paid all income from his capital assets. Generally, the trustee is given discretion to encroach on capital should he or she feel it is necessary. On Jane’s passing, the trustee would distribute Jack’s assets in accordance with the trust provisions (likely to his children from his first marriage).

Testamentary spousal trusts are not appropriate in all situations, so it is important that spouses in blended families carefully consider their estate planning options with an experienced lawyer and financial advisor.

Thanks for reading!

Ian Hull & Tori Joseph

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