When it comes to estate planning for blended families, there is no one size fits all solution. Likewise, sometimes a measure of creativity is required.
While the following solutions are far from an exhaustive list, here are some frequently used options worth considering:
1. Joint Revocable Living Trust – The most straight forward option is to create a joint Revocable Living Trust and have all assets go to the surviving spouse. Upon the death of the second spouse, the assets would be divided amongst both parents’ respective children. Advantages to this approach, include:
a. The surviving spouse has all the assets they need to live on.
b. Less complexity in administering the Trust.
Disadvantages include a lack of guaranty that “your kids” will get anything. With a Revocable Living Trust, in theory the surviving spouse could amend the Trust after the death of the first spouse. The stepparent could legally disinherit their stepchildren if they were so inclined.
2. Separate Trusts – Sometimes each spouse having their own trust is the easiest way to avoid conflict. Each spouse would transfer their own assets to their respective trust and those assets would be left to their respective children.
3. A Life Estate – Another option is to give the surviving spouse a life estate in all or a portion of the trust assets. Essentially, after the death of the first spouse, the survivor would benefit from the assets of the Trust, but only while they are alive. Upon the death of the second spouse, these assets would be distributed as originally planned. This alleviates the risk of a stepparent disinheriting their stepchildren. However, the downside is the surviving spouse has less control over their assets.
4. Distribution upon the first death – The distribution of assets (from a joint revocable living trust) is in no way limited to after the death of the second spouse. One option is to distribute a portion of assets at the death of the first spouse. You could essentially give the decedent’s children part of their inheritance when their parent dies. This mitigates some of the risk of stepchildren losing out on an inheritance if the stepparent gets remarried, amends the Trust, or simply exhausts the funds during their lifetime. This does however highlight a drawback to this approach. Depending on the size of the estate, a distribution at first death could leave the surviving spouse with insufficient funds for their remaining years.
None of these approaches are without both strengths and drawbacks.
There are many factors to think about when considering the available options. For instance, the age of your children can be quite relevant. If both spouses’ children are still young and the stepparents essentially function as traditional parents, there may not be need for any special consideration. On the flipside, if both spouses’ children are adults there is likely a different relationship and different concerns regarding “missing out on their inheritance.”
Similarly, the financial situations of both the parents and children (in the case of adult children) are factors. If one spouse has a child that may need more assistance this is always something to consider balancing, as well.
An experienced estate planning attorney can help guide you through the available options and determine which choices may be best for your financial and family situation.