Blended Families Face Critical Issues In Estate Planning

Our families change over time, as do our financial circumstances. Children and grandchildren are born, people get divorced or remarried, real estate is bought and sold, and people change jobs and roll over their retirement accounts. This is why it is important to establish an estate plan: so the family’s assets are protected during life and passed on to the heirs at death. It is critical to periodically review your will, trust, and/or estate plan to make certain that your legacy is funded, titled and properly protected.

Many people don’t realize until it is too late that they need to pay attention to the assets of family members as life unfolds. Protections should be in place to keep assets thriving and safeguarded for the sake of the family. This is particularly true in blended families. When there are ex-spouses and children from different parents, the situation becomes complicated. When another relative becomes a dependent of the family, there arises a need to consult an estate planning attorney. When someone passes away, the laws of the state come into play. Those laws often produce surprises that affect which family members inherit assets and which ones don’t. It seems almost cruel sometimes that some family members receive their inheritance and others don’t, particularly when the deceased promised otherwise.

An example is NFL quarterback Steve McNair, who did not have a will or a trust when he passed away. He left behind a wife and four children, two of whom were from a previous relationship. There was no estate plan, will or trust to provide guidance for how his relatives were to receive their inheritance. This may have caused conflict among the surviving relatives at a time when they were surely grieving. Without a trust, the children may not receive all the money the father intended for them. If McNair had a living trust and properly funded it during his life, he could have seen the wisdom of keeping his affairs private, an important factor for people in the public eye. Instead, his estate had to go through probate, a public process. If he had planned properly, he could have dictated what, when and how much inheritance his surviving spouse and each of his children and other family members were to receive.

The experience of Alice and Ed, who were married for 20 years, provides another good example. After six years of marriage, they had a child, Patricia.

Alice and Ed each created wills, leaving everything to the surviving spouse and designating the other for financial and health care powers of attorney. Later, Alice’s sister, Elena, was in a traffic accident that left her unable to care for herself. So, Alice and Ed bought a condo in their name for Elena and provided her with financial assistance. Eventually, Ed passed away, leaving his assets to Alice. She continued to care for Patricia and Elena. Unfortunately, Alice subsequently suffered a stroke and became incapacitated. Months later, she passed away. When Alice became incapacitated, she had no designated financial power of attorney other than Ed. This meant that nobody could access her assets to care for Elena and Patricia. When Alice died, she hadn’t changed her will to include her sister. The condo and funds that Elena relied on to survive were inherited by Patricia, who was a minor and unable to make decisions regarding these assets. Alice’s will and assets went through probate, which took nine months, depleted the value of the assets, and delayed the assets getting to Patricia. All of these outcomes could have been avoided if Alice had updated her estate plan when her sister was injured and again after Ed died.

Many people think they don’t need a will because they believe that when they die, their assets will pass automatically to their surviving spouse. But that’s not necessarily true. In Maryland, if a person dies without a will and has children who are minors, the surviving spouse receives 50 percent of the residuary estate and the minors receive the other 50 percent. If there are no young children, the surviving spouse receives the first $15,000 plus 50 percent of the balance of the estate, and the adult children receive the other 50 percent of the estate divided among them. The problem can be compounded if the decedent has a minor child by a prior marriage. In that case, a court-appointed guardian (who will probably be the parent of the minor – in other words, the ex-spouse) will be in charge of the minor’s share of the decedent’s estate. Imagine owning your home with your deceased spouse’s young child, whose share is controlled by your spouse’s ex. This is not a situation anyone wants to see, but it can be avoided with a will or a trust.

As we go through life, things change. It is important to periodically review your will, trust or estate plan to make sure your documents reflect your current situation and your intentions. Get started, don’t delay. Call Tara K. Frame, estate planning attorney, at 410-255-0373.