This makes the blended family far more commonplace than it once was. But it also poses its own challenges.
If you have children from a previous relationship, as well as children from your current marriage, planning your estate may not be as easy as someone who’s not a part of a blended family.
In this blog post, we go over everything you need to know about estate planning law when it applies to blended families.
What is Estate Planning?
Estate planning is a process an individual or family goes through to arrange the disbursement of their possessions and assets before they die. In other words, you plan what happens to your estate upon your death.
Your estate includes your financial assets, material belongings, life insurance, real property, pensions, etc. It’s a general term for everything you own.
You estate plan also includes planning for the payment of your debts. When you pass away, your family members and loved ones only get what’s left after the mortgage, car loan, medical bills and other expenses get paid. Many estate plans include medical wishes, like a Medical Power of Attorney and Directive to Physicians setting forth your desires should you not be able to make your own medical decisions or whether to bury or cremate your body.
The most confusing of these processes relate to taxes. There are?estate taxes, which get levied against an estate before assets get transferred and, in some states, inheritance taxes, which are paid by the person receiving the assets.
In the past, people skirted these taxes by giving away everything they could before passing away. But the IRS began taxing certain lifetime transfers under the?Federal Gift Tax.
The IRS gives you a lot of leeway when transferring assets. For example, the first $15,000 you give to any individual in a calendar year is excluded from the calculation of the value of your taxable transfers and you’re not taxed until the total value all taxable transfers exceeds the lifetime exemption, which was?$11.18 million?as of 2018.
A lot of moving parts make up estate planning, which is why people choose to hire estate planning lawyers to handle the process.
How Does Estate Planning Law Differ with Blended Families?
When you have a blended family, a last will and testament becomes even more important. Setting out clear instructions regarding the disposition of your assets helps reduce the confusion and avoid family conflict. Some of the most common challenges someone from a blended family faces when planning their estate are:
- One or both parties enter the marriage with separate property assets
- You want to provide for your spouse and your biological children
- You want your biological children to receive the rest of your estate after your spouse dies
- Interference by prior spouses
The division and disbursement of assets are where it gets tricky. For example, say Jane divorces from her first husband and marries John. Jane and John have two children from previous marriages and none together.
Jane passes away, leaving her assets to John. When John passes away, Jane’s assets could pass on to John’s family, not hers.
In other words, if Jane’s estate is worth $1 million and she leaves half to her biological son and half to John, who passes away within a year of Jane, her son doesn’t necessarily get John’s half. John’s surviving family members could.
Setting up a trust ensures these situations get handled in a clear way. John and Jane set up a trust for their benefit. When Jane dies, John?s assets are put into one trust for his benefit that he has full control over, while Jane?s assets are put into a separate trust for John?s benefit that have restrictions on the use and distribution of the assets. When John dies, the remaining trust assets pass to Jane’s son, not John’s child.
Alternatively, Jane can create a trust under her will for John?s benefit, with the same restrictions on the use and distribution of the assets. Jane?s will can only control the distribution her assets, so it will not mention the distribution of John?s assets. Jane?s assets cannot be transferred to the trust for John?s benefit until her will has been admitted to probate by a Court. Just as above, when John dies, the remaining trust assets will pass to Jane?s son.
This protects Jane’s son in the event John remarries and/or changes his will before he passes away. John’s new wife or other beneficiaries wouldn’t receive any of Jane’s assets or money.
Tips to Avoid Future Probate Litigation
You don’t have to be ill or in failing health to ensure your will is clear and concise. In fact, it’s suggested that you review your will and any beneficiary designations you have on file with insurance policies, retirement or investments accounts, and pensions every few years.
If you have a diversified portfolio, you may not have thought to change your beneficiary information when you got divorced and remarried. You can ask your financial planner or advisor for help reviewing the information and making any necessary changes.
If you have specific items you want to leave your children, start writing them down into a list. Say, your daughter always loved your antique chess set or your son was always fond of your old sports car.
Noting these specific items should go to a specific child helps keep your final estate plan organized.
Something often overlooked in estate planning with blended families is what heirlooms or personal items get left to the children. If it’s not written down, your probate lawyer or your kids won’t know for sure who receives what.
You Need a Team You Can Trust and Depend On
Estate planning law is at times confusing and can lead to frustration from many parties. Hiring an experienced attorney who specializes in estate planning relieves many of these concerns.
At Hardesty Law, we’re those attorneys. Our practice focuses on family law, estate planning, probate law, and several other related fields. Our attorneys are compassionate, knowledgeable, and professional and have offices in Dallas and Midlothian.