Blended Families

by Mary Piasta

people on the beach watching sunsetLegal Strategies for Blended Families

Estate planning can be a simple, positive experience or a tedious, complex one.  Much of whether it is one versus the other involves whether the client has been married or had a domestic partner that they separated from.  It becomes even more of the latter when the client remarries, especially more than once.

The first series of questions needed from such a client pertain to the terms of their dissolution agreement, and if a prenuptial agreement was entered into for the prior relationship, as well as the latest.  Conditions such as alimony, child support, real property transfers, whether the dissolution is finalized, and more will develop a detailed picture of what is possible given any limited transferability of assets and change of situation.*  The second series of questions should address intentions for the current relationship—whether marriage, domestic partnership, or long-term significant other.  Practitioners should understand the differences in their state as to rights provided by common law marriages, domestic partnerships and marriages.

Once the current climate of dissolution and union is established, attention should be given to practical changes of beneficiaries for retirement accounts, life insurance, and any “pay on death” or “transfer on death” accounts.  As obvious as these changes are many spouses leave the more mundane for after the heavy lifting of the dissolution agreement is established.  Such discernment may lead to difficulties later if not addressed.  Specificity should be used as well as the newer concept of multiple beneficiaries, to reduce costs associated with a trust administration or probate.

In turning to the estate plan established prior to dissolution, the first question clients often ask is how to “dissolve the revocable trust” created with the prior spouse/partner.  It is this author’s opinion that a dissolution is an unnecessary step when appropriate and timely steps are taken to divest assets properly titled in trust.  We suggest practitioners take the time to research if such steps were taken, and what may be left to complete.

Clients should be educated to expect a new estate plan which is often requested.  Pain should be taken to ensure any document from the previous estate plan with the prior spouse/partner is recreated with the new spouse/partner in mind.  This is a perfect time to revisit burial and/or memorial plans and wishes.  Clients should be reminded that current estate planning has the double duty of reflecting specific wishes as well as revoking prior documents.

By far the most difficult aspect of the new estate plan is how to provide for the new spouse/partner while leaving something to children.  While creativity on the part of the practitioner plays an important part, practicality reigns supreme.  The client, for example, may wish to have an AB trust or may even have the assets to have an ABC trust, given the lifetime exemption.  Assigning income from one of all trusts to the new surviving spouse or partner with the remaining principle assigned to the decedent spouse’s or partner’s children.  Similarly, access to principle by a surviving spouse can be limited to a specific percentage, and only if the survivor’s needs necessitate such a move.  A life estate in the family residence, specific gifts to children, and outright transfers to adult children prior to death or incapacity are other ideas but are by no means exhaustive.

Proverbial potholes of note for a blended family with minor children include the choice of guardians.  Unless the prior spouse/partner relinquished custody, then the death of the primary parent may lead to the reversion of the other parent as sole guardian.  For many families this may not pose an issue, but if it does, discussions with the client to address fears and concerns of living with the other parent may lead to an agreeable solution.  Infrequently, new spouses/partners may be interested in adopting a child of a parent who is no longer present, thereby establishing the child as the adoptive parent’s issue under California law, thereby avoiding complexities of providing for stepchildren.

Family businesses in need of division, partial sale, or dissolution may require most of the attention if the client has yet to address it.  Along with the transfer of interest, if any, and appropriate forms to the secretary of state, franchise tax board, and IRS, additional time should be given to examining terms of buy-sell agreements, valuation requirements in bylaws, organizational agreements, or partnership agreements; who will take the place of the departing spouse/partner as a director or corporate officer; terms of a dissolution agreement that still need compliance; and any contracts and day-to-day operations.  Practitioners should be aware that all efforts to preserve the corporate veil will help protect the remaining spouse, and business, from liability brought on by the distraction of marital dissolution.

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