Estate Planning for Blended Families, Part 2

Six Concrete Actions You Can Take To Help Prevent Conflict

I outlined some of the legal and emotional hurdles common to estate planning for blended families in my previous blog entry. Now here are some affirmative actions you can take to help maintain family harmony. The following actions are not in order of importance, but rather addressed during the phases of exploring your relationship.

First, consider prenuptial or postnuptial agreement. I know, too often, the concept of a prenuptial or postnuptial agreement is viewed as a romance killer. Admittedly, if your romance already has trouble, bringing up the question of an agreement is not a recipe for improving the situation. But if you are concerned with the concept of discussing divorce before, or even just after you are married, an agreement can be limited promises associated with the estate planning issues. An estate-focused agreement can become more of a promise to each other’s children than an offramp in the event of divorce.

Second, make an estate plan, do not let the state dictate the distribution to your family. Make an appointment with an estate planning attorney, and if your estate is complex enough, a financial advisor to work cooperatively with your attorney. Professionals can ask the questions necessary to identify your planning goals, identify areas of concern, recommend solutions to achieve those goals, alleviate any concerns, and draft the documents required to implement those recommendations.

Third, update documents related to your assets not transferred through probate. While your attorney prepares your will, trusts, or powers of attorney, many assets transfer outside the probate process. Specifically, any property held in joint tenancy, retirement accounts, and insurance beneficiary designations transfer property by the terms of their documents, not any will provisions. It is important that once you have developed your estate plan that the documents associated with these assets get updated to match your estate planning goals. The best way to avoid a conflict is to review these documents after an estate plan update and every couple of years in between updates.

Fourth, carefully consider who will become the executor of your will. While you can choose anyone as an executor – family member or otherwise – it’s important to find someone who is trustworthy and reliable. An executor’s knowledge of the legal, tax and administrative issues associated with probating is beneficial, but a trustworthy and reliable executor can hire that expertise.

In many relationships, the “default” executor is the surviving spouse or oldest child if no surviving spouse. While this is a suitable choice in many instances, there are considerations for blended families. The surviving spouse is not necessarily “mom” or “dad” to everyone addressed in your plan and may not receive the deference their biological children would give them. For this reason, a blended family should consider choosing an executor who is not a relative, perhaps even a corporate executor, if there is concern about straining family relationships.

Fifth, a properly drafted trust (or trusts) may be a particularly useful tool to aid in distributing assets. A common scenario is establishing a trust providing the surviving spouse income (and possibly principal depending on your situation). The remainder of the trust is distributed to the decedent’s children after the spouse passes. Such tools are particularly useful for estates needing to take advantage of the full marital estate exemption for estate tax purposes.

Lastly, engage your family in meaningful dialogue regarding your estate plan. That does not mean you ask your children what they want to be done or they expect to be done, but puts them on notice regarding your wishes. Many, if not most, estate issues arise from a surprise on the part of one or more beneficiaries. You can discuss the issue with your family in a way that maintains your financial privacy but, at the same time, prevents surprises or questions regarding the appropriateness of any subsequent distribution. While drafting a new will and updating your beneficiaries by no means ensures a smooth probate process, an open and consistent dialogue goes a long way toward this goal.