What the Modern Blended Family Should Know About Estate Planning
By Lisa Maguire, Woods Fuller Shareholder
It is no secret that blended families are common these days. Approximately 50% of marriages and 60% of remarriages end in divorce. Second, third, and fourth marriages often come with children and the modern “blended family” results. Blended families have estate planning implications that should be considered.
First and foremost, South Dakota’s intestacy statutes do not include step-children in their definition of “children.” This means that if you were to die without a will, your step-children would not be entitled to inherit any of your estates. So, if you want to ensure your step-children inherit, you need to (1) make a will and (2) explicitly define your step-children as “children” under the terms of your will. However, you do not have to treat your step-children as you do your biological children.
You can choose to not leave them any part of your estate, leave them a smaller portion of your estate than you leave your biological children, or even leave them a larger portion of your estate than you leave your biological children.
There are, of course, other considerations that must be made when you have a blended family. One consideration is your ex-spouse. Most laws treat an ex-spouse as “pre-deceased” as of the date of divorce for purposes of distributing your assets in accordance with your estate planning documents.
Although these laws are often the default, it is a good idea not to rely on these laws and instead update your estate planning legal documents. In addition, be sure to change your beneficiary designations, for example, on your life insurance and 401K policies.
The Employee Retirement Income Security Act (ERISA) has been known to throw a wrench into these “default” laws, and they can be overcome with evidence of contrary intent. It is better to be safe than sorry, so be sure to change your beneficiary designations.
The relationship between your second spouse and your children is another thing to consider. Often, will provide that everything will be distributed to a person’s spouse upon his or her death and then to the children. Spouses often enter into these types of wills coined “I love you wills.” This can be tricky, however, when that spouse has children that are not the children of the decedent.
The following situation might result: The husband dies, leaving everything to his new wife based on the understanding that she will leave her entire estate to the children (both his and hers, equally) upon her death. Then, the wife drafts a new will, leaving everything to her own children, and disinheriting her deceased husband’s children.
This situation can be avoided. One way is by entering into a contract with your spouse that would prohibit the surviving spouse from changing the will. If he or she did, he or she would be in breach of the contract.
In the alternative, you may decide you wish to take a different approach that does not involve a potential breach of contract claim. To provide for both your spouse and your children, you may decide to create a trust that first provides for your spouse during his or her lifetime and then distributes to your children upon your spouse’s death. If you take this route, it is a good idea to appoint a neutral, third-party trustee due to the competing interests of the surviving spouse and the children.
It is common for children, as contingent beneficiaries, to sue on the basis that the trustee is making extravagant distributions to the step-parent and, in doing so, is diminishing the trust property so that there will be less for the children to enjoy upon the step-parent’s death. If there is a neutral trustee, these lawsuits are less likely to occur.
Another option to consider is to leave something for your children upon your death so that your children can enjoy some of their inheritance without having to wait until the step-parent passes away. This could be, for example, by a specific gift in a will, by a separate trust, or by designating them as beneficiaries of a life insurance policy.
You might also consider entering into a premarital or post-marital agreement with your second spouse. The agreement should explicitly state the surviving spouse’s rights and obligations as they relate to the distribution of property at death. You can use this type of agreement to segregate property that was acquired prior to the marriage from property that is acquired during the marriage and to define how each should be distributed upon death.
No matter what estate planning tools you choose to implement, it is important that you and your spouse are on the same page. Talk to a Woods Fuller attorney to ensure your estate plan meets your goals.
