California Living Trust How to Protect Blended Family Children
Estate Planning for Blended Families (Second Marriage)
Estate Planning for Blended Families
Estate planning for blended families requires addressing problems specific to the blended family scenario.
What is a Composite Family unit?
Generally, in the estate planning world, the term "blended family" is used to draw a family unit where there is one or more step-children. This tin take several forms: one) Second marriage for both spouses with children from prior marriages; 2) 2d wedlock for ane spouse, where at to the lowest degree one spouse has children from a prior human relationship; iii) Starting time spousal relationship for both spouses, simply either or both spouses take children from prior relationships; and iv) life partners who accept children from prior relationships.
Manor Planning Issues Specific to Blended Families
No Manor Plan. The most common issue for blended families is the lack of whatsoever estate planning. If your composite family does non have an estate program in identify, then upon your death, there is a good chance your assets will never be distributed to your children, either by default or intentionally.
Brady Bunch Example #i: Mike and Carol Brady are married and each take children from prior marriages. Mike has 3 sons: Greg, Peter and Bobby. Carol has iii daughters: Marcia, Jan and Cindy. Mike and Carol exercise not have an estate plan and Carol dies start. Under the California Probate Laws, Mike volition probable receive most or all of Carol's assets. If Mike does not do any estate planning later Ballad's death, then upon Mike'due south death, his assets will pass to his children (but non his step-children) or his new spouse. Hither, without whatever estate planning in place, Carol's children will be disinherited past the default Probate laws. If Mike decides to have an estate plan prepared after Carol'south expiry, will Mike provide for Carol's children or will he distribute all of his assets to his children? The discussion nosotros often have with our composite family unit clients is regardless of best of intentions by either spouse, let's take a plan in place so that there is no question regarding who volition receive the assets in the time to come.
Traditional Estate Plan. Does your blended family have a joint trust (1 trust for both spouses)? If you have a joint trust, there is a very skillful chance you have a traditional manor plan. All too often we meet trusts that were prepared by not-attorneys or attorneys that are not specialists in estate planning that use the traditional estate planning formula for blended families. The traditional estate plan states that when either spouse passes abroad, the articulation trust splits equally between two sub-trusts ("A" Trust and "B" Trust). Both the A Trust and B Trust country the aforementioned thing: provide for the surviving spouse, and and then after surviving spouse'due south decease, all assets are divided every bit betwixt both spouse'due south children. Seems fair enough, correct? The following example shows why this traditional estate planning approach creates what we phone call the 75% trap:
Brady Agglomeration Case #2: Mike and Carol prepare a traditional estate plan. Mike'southward and Ballad's merely asset is $1.2 million in cash. Carol passes away first. The trust splits the greenbacks equally betwixt two sub-trusts ($600,000 to the "A" Trust and $600,000 to the "B" Trust). Both the A Trust and B provide for Mike'due south care, so after Mike's death, all assets are divided as between the six children. So when Mike passes away, the A Trust volition be carve up vi ways ($100,000 to each child) and the B Trust volition be dissever six ways ($100,000 to each child). So far, so good.
The issue is that the A Trust is revocable (can be changed) by Mike until he passes away. If after Carol passes away, Mike decides to change the terms of the A Trust to provide only for his children, then upon Mike'southward death, the A Trust will exist divided three ways ($200,000 to each of Mike'due south children) and the B Trust will still be divided 6 means ($100,000 to each of the six children), and so that each of Mike's children receive a total of $300,000 each, and Carol'south children receive $100,000 each. Thus, 75% of the family assets finish up in the hands of Mike'south children, and 25% in the hands of Carol'south children. This is not the programme that Carol agreed to when she was alive. Unfortunately, about estate plans fall into this 75% trap.
Some other event with traditional estate planning for blended families is choosing the appropriate Trustee (person in accuse of the Trust). Traditionally, after the first expiry, the surviving spouse is the Trustee of the A Trust and B Trust, simply this will often lead to issues between the surviving spouse and footstep-children. The step-children are left with a tough decision: question their step-parent's proper utilise of the B Trust and risk being disinherited from the A Trust or simply ignore whatever improprieties by the pace-parent and hope they are not disinherited from the A Trust.
These are only a few issues with the traditional estate plan arroyo for blended families. Fortunately, with better planning, many of these issues can be avoided or mitigated.
Composite Family Manor Plan
As a blended family unit, you are often trying to balance the needs of your spouse and your children (sometimes one more than than the other). Many of our clients want to provide for the surviving spouse should something happen to either of them, but also want to ensure that their own children receive an equitable portion of the assets later the 2nd spouse's passing.
Estate Planning for the Blended Family. Rather than creating a single joint trust, nosotros create three trusts: a articulation trust and a separate trust for each spouse. Hither's how it works. The joint trust volition concur community property (articulation) assets between spouses. The separate trusts will agree each spouse's separate property, if any. Upon the beginning spouse's death, the joint trust assets will exist distributed to each spouse'due south ain trust. Each carve up trust volition take its ain trustee and its ain beneficiaries.
Brady Agglomeration Instance #three: Same facts as Case #2, except Mike and Ballad prepare three trusts: a joint trust, Mike'due south Trust and Carol'southward Trust. Allow'south assume that all of the $i.2 million of cash is held in the joint trust. When Ballad passes away, the joint trust is divided equally between Carol'southward Trust ($600,000) and Mike'due south Trust ($600,000). Ballad's Trust may or may not provide that during Mike's life, he is the beneficiary of Carol'southward Trust. Yet, after Mike'due south death, Carol's Trust will be distributed to Carol'southward children ($200,000 to each of Carol's 3 children). Similarly, Mike'southward Trust will continue to be held for his own benefit while he is live, but later his death, just Mike's children will exist the beneficiaries of Mike'south Trust ($200,000 to each of Mike'south 3 children).
By creating a divide trust for Mike and Carol, we can ensure that Mike's children receive 50% of the avails and Carol's children receive 50% of the assets.
Nosotros tin can also choose a different trustee for each of Mike's and Ballad'due south Trust without whatever of the children having to worry about being disinherited by the surviving spouse. If Mike is the trustee of Carol's Trust, Ballad'south children can ensure that Mike is properly administering Carol's Trust without fear that they will be disinherited.
Ane Spouse Comes Into the Matrimony With More than Avails. It is not unusual for spouses to come into a second matrimony with an unequal amount of assets. Often times, the spouse with more than assets wants to ensure that his or her assets will exist distributed to his or her children later both spouses pass away. The composite family unit estate programme takes these additional assets into consideration.
Brady Bunch Instance #iv: Same facts as Example #3, except when Mike and Carol married, Mike had no avails and Carol had $300,000 in cash. Over time, Mike and Carol accumulated $one.2 million of articulation assets. In this example, while both Mike and Ballad are alive, Mike and Carol will accept $ane.two 1000000 in their joint trust, Mike'south Trust will accept no avails and Ballad'southward Trust will have $300,000 of assets. Again, Carol passes away first. The joint trust is split equally between Mike'south Trust and Ballad'due south Trust. Mike's Trust now has $600,000, just Carol's Trust has $900,000 ($300,000 from before they were married, plus $600,000 from the joint trust). Upon Mike's later passing, Mike's Trust will distribute $200,000 to each of Mike's children and Carol'southward Trust will distribute $300,000 to each of Carol's children.
Past using the blended family manor planning approach, Carol is able to ensure that her split assets and half of the joint avails are distributed to the beneficiaries she chooses.
Estate Planning Attorney for Blended Families
While many of our composite family unit clients fall into one of these categories, there are several more than scenarios that are also specific to blended families. John Fifty. Wong, experienced Orange County Estate Planning Attorney at Modern Wealth Law, tin advise yous on these unique issues and ready a plan to address each of them. Y'all may call us at (949) 371-5003 or contact Modernistic Wealth Law by email, and John L. Wong will be happy to discuss your options with you.
Source: https://modernwealthlaw.com/estate-planning-blended-families/
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