Wednesday, June 28, 2017

Estate Planning for Couples with Step-Families

“Managing family finances is difficult to begin with, but when you add in stepfamilies and half siblings, family planning becomes increasingly complicated,” Jane King and Caroline Hedges write in Financial Planning. This is no limited problem, the authors note: According to the U.S. Census Bureau, over 50% of U.S. families are remarried or recoupled after a divorce, and the “blended family” is on track to become the predominant family structure in the U.S. At Geyer Law, we know that, from an estate planning point of view, blended families have many complex areas that need to be discussed and formalized in planning documents.

Start by knowing all your existing obligations, King and Hedges suggest, including:
  • alimony payments
  • child support
  • responsibility for college tuition payments
The next important step is drafting a prenuptial agreement.  That document makes it clear who owns what assets, King and Hedges emphasize. Then, even more important, each party’s intentions are in terms of not only current payments, but future bequests.

As estate planning attorneys, we remind our remarried couple clients that, if not waived in a prenuptial agreement, a surviving spouse has a legal claim against a portion of the spouse’s estate, and that claim has priority over the bequests made in the will (very much like the claims of a creditor).
Spouses automatically becomes the primary beneficiaries of each other’s spouse’s ERISA retirement account. Pre-retirement, neither spouse can choose otherwise without the other’s consent. In an annuity payout, the form of payment must be a joint and survivor annuity. If a spouse wishes to leave his or her qualified retirement plans to a beneficiary other than the spouse, the prenuptial agreement should address this issue and provide that the spouse agrees to execute a consent to allow a different beneficiary on the plan.
 
Estate planning needs to include powers of attorney. In the absence of a power of attorney appointing a different decision maker, the current spouse has the highest priority to serve as a guardian over the assets and over the person of an incapacitated spouse.

Prenuptial agreements must cover three possibilities:
  • Divorce
  • Incapacity
  • death
When there are minor children involved, the planning must be highly specific, taking into consideration divorce and child support agreements from former marriages. When one or both spouses has power of attorney for a parent, that consideration needs to be woven into the fabric of the overall plan.

Planning for step-families is both highly complex and highly rewarding (for us as advisors, but also for the newly blended couple themselves. “Enable family members you trust to provide for future generations.  Think ahead,” advise King and Hedges.

- by Rebecca W. Geyer

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