His, Hers & Ours (the Brady Bunch Scenario)

March 16, 2018

Here's a story we all know well, often through personal experience. Blended families are common this day and age when nearly a quarter of all marriages are a second marriage for one of the spouses. This raises some interesting estate planning issues. New spouses typically want to make sure the assets each brought into the marriage are passed on to their own offspring. Spouses also want to make sure the survivor of the two is provided for while still preserving an inheritance for their own children and preventing assets from unwittingly transferring to others. It can get complicated but with thoughtful and careful planning, a trust and other tools can address these concerns.

 

Suppose it is Dad's intention ("Mike") that his boys get 75%, divided equally, of his estate when he is gone. However, he also wants to make sure his spouse ("Carol") is cared for if she survives him, and for as long as she is alive and unmarried. Suppose further that because Mike is fond of his step-daughters he wants to set aside 25%, split equally, for them as well. Adding one more factor, suppose Mike wants his business partners at the architectural firm where he has worked for many years to have the option to purchase his shares of the business should anything happen to him. That way they do not necessarily need to take on Mike's surviving spouse as their new business partner.

 

With some good planning, Mike can accomplish all of this by:  1) establishing a special kind of trust (a "QTIP" trust) that provides for Carol yet preserves his assets for his kids, 2) making a pour-over will that transfers any leftover assets to his trust, and 3) setting up a buy-sell contract with his partners so they can have the right to purchase his shares of the business. Through the mechanics of the trust, Mike can direct that his estate be used to care for Carol. The interest on the trust investments may be designated for her, and even the principal if necessary, until her passing. He can ensure the remaining estate is divided between the boys and girls just as he desired. And through the business contract, he can help his partners preserve continuity at the firm and control ownership.

 

However, if Mike predeceases Carol without having done a will or trust, his boys quite possibly will not inherit anything. Carol receives 100% of Mike's estate, including his business interests. It will be her decision whether the boys or the girls inherit from her. Making matters more complicated, if Carol remarries and has NOT done any estate planning herself, were she to predecease her new husband, new husband would end up with all of Mike's estate, including the business interests! New husband would then pass that on to his offspring. Hardly what Mike wanted or his kids or, for sure, his business partners!

 

Second marriage spouses would do well to contemplate these kinds of issues as they bring together two families. Thoughtful planning can help preserve the peace and harmony among the children that their parents experienced when they again found love.

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