What are the Concerns of Blended Families in Second Marriages?

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Generally the concern and conflict in planning occurs in those situations where someone with children from a prior marriage has entered into a second or subsequent marriage. The conflict arises out of the client’s desire to provide for the current spouse and yet not disinherit the children from the prior marriage. This can create a challenge if the various estate planning techniques that are available are not understood or properly implemented.

The goal is generally to provide sufficient access and income for your surviving spouse so that he or she may continue to live comfortably after your death. Attitudes and consequences regarding remarriage of your surviving spouse following your death need to be addressed. An open and frank discussion of the potential for friction and conflict between your surviving spouse and your children from a prior marriage needs to occur. The emotional needs of all those involved will need to be anticipated and considered.

Generally speaking, the pure tax technique employed in estate planning is to transfer taxable assets, such as those owned and included in the decedent’s estate, to beneficiaries who are not subject to estate tax. As a result of the unlimited marital deduction, the surviving spouse is typically not subject to tax at the first death. The corollary is to provide for the transfer of non-taxable assets, such as life insurance proceeds contained in an irrevocable life insurance trust, to taxable beneficiaries. The goal, from a pure tax planning perspective is to transfer assets that would be excluded from the gross estate of the deceased, for tax purposes, to beneficiaries who would otherwise be taxable, such as children.

That goal is not always achieved due to the desires and dynamics of each family. Beneficiaries may place significant emotional value on assets that may have little or no intrinsic value. On the other hand, beneficiaries may place significant emotional value on fungible assets such as investments and retirement accounts and attribute little value to personal property of the decedent.

The typical plan utilized for first marriages, where at the death of the first spouse all of the property passes to or is held for the use and benefit of the surviving spouse and at the surviving spouse’s death the property passes to the children will not normally be satisfactory in blended family and second marriage situations. Part of the concern with blended families and second marriages is that your surviving spouse is placed between your children and their ultimate inheritance from you and the potential for hard feelings between your surviving spouse and your children can be created. In this situation the inheritance of your children is dependent upon the spending habits of your surviving spouse.

Your children may view each expenditure by your surviving spouse as a reduction in their inheritance. Their vigilant scrutiny of your surviving spouse in and of itself can create conflict and foster resentment. Your children may believe that your surviving spouse is living too extravagantly, is taking too many luxurious vacations, is squandering their prospective inheritance; or is intentionally spending their inheritance in order to preserve your surviving spouse’s assets for her children. The surviving spouse, on the other hand, may feel that he or she has not been treated properly by your children and may retaliate in a manner that would reduce or eliminate your children’s inheritance. Ideally you should provide for your surviving spouse and your children entirely separately. As a consequence, it makes sense to segregate your children’s inheritance from your surviving spouse’s inheritance.