Estate Planning for Blended Families

When a couple in a blended family fails to address what will happen after the first spouse dies, families often find themselves embroiled in disputes.  According to the article “In blended families, estate planning can have unintended issues” from The News-Enterprise, this is more likely to occur when spouses marry after their separate children are already adults, don’t live in the parent’s home and have their own lives and families.

In this case, the spouse is seen as the parent’s spouse, rather than the child’s parent. There may be love and respect. However, it’s a different relationship from long-term blended families where the stepparent was actively engaged with all of the children’s upbringing and parents consider all of the children as their own.

For the long-term blended family, the planning must be intentional. However, there may be less concern about the surviving spouse changing beneficiaries and depriving the other spouse’s children of their inheritance. The estate planning attorney will still raise this issue, and the family can decide how important it is to them.

When relationships between spouses and stepchildren are not as close, or are rocky, estate planning must proceed as if the relationship between stepparents and stepsiblings will evaporate on the death of the natural parent. If one spouse’s intention is to leave all of their wealth to the surviving spouse, the plan must anticipate trouble.

One very common approach to this issue is to set up a trust for the surviving spouse, which is often called a marital trust.  This establishes a trust for the benefit of the spouse, but whatever remains in the trust will go to the deceased spouse’s beneficiaries.  So, you can have your spouse benefit from your money, but make sure what’s left goes to your kids.

In some families, there is no intent to deprive anyone of an inheritance. However, failing to plan appropriately—having a will, setting up trusts, etc.—is not done and the estate plan disinherits children.

It’s important for the will, trusts and any other estate planning documents to define the term “children” and in some cases, use the specific names of the children. This is especially important when there are other family members with the same or similar names or perhaps a lack of clarity as to who the children are.

In Texas, this issue is even bigger when you don’t have an estate plan for a blended family.  If the decedent raised a stepchild in their home, they could potentially be considered a child of the decedent through adoption by estoppel.  If that’s true, then they are a child as far as the estate is concerned.

As long as the parents are well and healthy, estate plans can be amended. If one of the parents becomes incapacitated, changes cannot be legally made to their wills. If one spouse dies and the survivor remarries and names a new spouse as their beneficiary, it’s possible for all of the children to lose their inheritances.

Most people don’t intend to disinherit their own children or their stepchildren when estate planning for blended families. However, this occurs often when the spouses neglect to revise their estate plan when they marry again, or if there is no estate plan at all. An estate planning attorney has seen many different versions of this and can create a plan to achieve your wishes and protect your children.

It also makes sense to consider the children’s role in your finances as you age as the blended family situation may complicate the matter.  See this article where I addressed that more specifically.  https://www.galliganmanning.com/the-blended-family-and-issues-with-finances-and-estate-planning/  

A final note: be realistic about what may occur when you pass. While your spouse may fully intend to maintain relationships with your children, lives and relationships change. Clients often struggle to confront this or admit it to themselves, but I assure you it comes out later, and we can plan better when all of the issues are addressed.  With an intentional estate plan, parents can take comfort in knowing their property will be passed to the next generation—or two—as they wish.

Reference: The News-Enterprise (Dec. 7, 2021) “In blended families, estate planning can have unintended issues”

 

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Effect of Adding Someone to Your Bank Account

Clients constantly, often at the suggestion of their bank, add someone to their bank accounts.  This could be an elderly parent adding a child so they can write checks for them, or perhaps adding the names of beneficiaries so they own the account at death or can use that money to help someone else.  Regardless of the reason, it is critical to understand that adding another person to your bank account provides both of you with complete access to the account and has a big impact on your estate plan, as well as other issues such as taxes or Medicaid.  It is critical to understand these implications and the different ways you can do this, explains the article “What are my rights when someone adds me to a bank account?” from Lehigh Valley Live.

A joint account is a bank or investment account shared by two individuals, although more than two people may be on an account. They have equal access to funds, as well as equal responsibilities for any fees or expenses associated with the account. If there are transactions, depending upon the rules of the institution, all owners may be required to sign documents. The key is how the account is titled. That’s the controlling factor in determining how the assets in the account are divided, if one of the owners dies. There are several different types of joint ownership.

One is “Joint Tenants with Rights of Survivorship,” or JTWROS. If one of the account owners should die, the assets in the account go directly to the surviving account holder. These assets do not go through probate.  Often people assume this is what they have on their bank accounts, but in most cases this is not the default setting.

Then there’s “Tenants in Common,” or TIC. With TIC, each individual account owner has the right to designate a beneficiary for their portion of the assets upon their death. The assets might not be split 50/50. How the account is titled lets the account owners divide ownership however they want.  This is important because in an estate situation, the decedent owns 50% of the account.  So, if client leaves a Will giving everything to their neighbor, instead of their spouse

Another one: “Joint Tenants by the Entirety.” This describes a married couple who own real estate or a financial account as a legal entity with equal ownership. Neither person may transfer their half of the property during their lifetime or through a will or a trust. When one spouse dies, the entire account goes to the surviving spouse and it transfers without passing through probate.  As an aside, this isn’t applicable in all states.  From my knowledge, it exists in Pennsylvania, but not Texas or New York.

I should note as well that Texas includes the ability to add a check signer to bank accounts.  In theory this means a person, such as an adult child, who is given express authority to sign checks on your behalf.  For what it’s worth, clients frequently believe what they are doing is adding a name to an account “just to write checks.”  However, I have found that banks always create one of the joint account options listed above.  Simply put, it is easier and cleaner for them, and so that’s how they do it.

Power of Attorney or POA is a completely different thing. A POA is a legal document giving a person the authority to act on behalf of another person for a specific transaction or general legal and financial matters. Just as there are numerous types of joint ownership, there are numerous types of POA.

A general POA gives a person the power to act on behalf of the principal for all legal, property and financial matters, as long as the principal’s mental capacity is sound. The Durable POA gives authority to a person to act on behalf of the principal, even after the principal becomes mentally incapacitated. Special or limited power of attorney gives authority to act only for specific matters or transactions. A Springing Durable POA provides authority to act only under certain events or levels of incapacitation, which is defined in detail in the document.

You can be both a joint owner of an account and a power of attorney. These are two different ways to help a parent with financial and legal activities. An estate planning attorney can help create the POA that best fits the situation.

Reference: Lehigh Valley Live (June 10, 2021) “What are my rights when someone adds me to a bank account?”

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