People with blended families can face complex estate planning challenges. They may want to provide for their current spouse, their children with their current spouse, their children from previous marriages, and in some cases, the children from their spouse”™s previous marriage.
In New York state, spouses are entitled to at least one-third of your estate unless the parties execute a pre- or post-nuptial agreement. If you simply leave an equal amount of money to the children from your first and second marriages, your children with your current wife will likely receive a disproportionate share of your assets because they will receive inheritance both from you and your surviving spouse.
Providing for everyone you love can be a difficult task. You need an estate plan that fits your situation. Relying on your spouse and children to “work it out” could lead to family squabbles and potential litigation after you are gone. Here are some estate planning tools and techniques to help you create a plan to fit you and your family”™s needs:
Prenuptial and Postnuptial Agreements: It is important to consider your estate before entering into a second marriage, especially when you are concerned about taking care of children from a first marriage. A prenuptial agreement can be drafted to waive a party”™s right to at least one-third of the estate, as long as he or she still receives some part of the estate. This would protect the children of the first-to-die since their parent”™s money would go to them and not to the new spouse.
Trusts: Trusts can be designed to benefit both the surviving spouse and children. It is important to select a trustee that will follow your wishes fairly, perhaps someone outside the family. The trust can distribute the assets to the surviving spouse and designated children. Trusts have the added benefit of protecting assets from creditors and the claims of your children”™s spouses or former spouses. You can even include a “no contest” provision in the trust to minimize the risk that the trust will be challenged.
Irrevocable life insurance trusts (ILITs): You can use life insurance to provide for your children through an irrevocable life insurance trust while using other estate assets to provide for your surviving spouse. This prevents children from being disinherited because the trust names them as sole beneficiaries of the life insurance policy. Each child will receive his or her inheritance promptly because the policy pays the trust immediately upon your death. The money in this type of trust is not included in your estate and therefore is exempt from New York and federal estate taxes, which makes it an attractive option for those with large estates. While your spouse has to explicitly waive his or her right to your retirement account if you want to leave it to your children as beneficiaries, there is no such requirement for an irrevocable life insurance trust.
Review of beneficiary designations: Make sure to review all of your assets that have beneficiary designations, specifically your insurance policies or retirement accounts as it is the terms of the beneficiary form, which controls the disposition of those assets irrespective of what your will or trust may state. Many people forget to change beneficiary designations after getting divorced or remarried and you want to make sure your wishes are carried out.
Do your homework and seek out advice from advisers who have worked with blended families. That way, you can ensure that your wishes will be respected and your family members will be provided for.
Michael J. Greenberg is an estate planning, elder law and special needs planning attorney at Keane & Beane P.C. He is on Twitter @MJGElderLaw and can be reached by email at mgreenberg@kblaw.com.
