Estate Planning for Unique Families

Nov 27, 2018

blended family“Blended” families are a more common occurrence in recent times. According to one source, more than forty percent of marriages in this country end in divorce. This is always a point of concern in the estate planning context. Lack of planning, or improper planning, can result in inheritance by unintended heirs or, maybe even worse, lack of inheritance by those who should have been beneficiaries.

One mistake or oversight that people sometimes make is failing to update beneficiaries on life insurance policies or retirement accounts. For example, let’s say John and Carlene, while happily married, both purchase life insurance policies and, quite normally, named each other as primary beneficiaries. Over the years they have children and name the kids as contingent beneficiaries. Sadly, John and Carlene divorce but both move on to second marriages with each having more children. While Carlene was diligent in changing the beneficiaries on her policy, John was not so diligent. When John passed away, his second wife, Patricia, contacted the insurance company to collect on the policy, only to find that Carlene was still his named beneficiary. This same mistake can be made on a retirement account, such as an IRA, where primary and contingent beneficiaries should be named.

Another complication arising from multiple marriages can be who inherits and how they inherit. Let’s continue with the example of John and Carlene. Carlene, ever diligent, engaged an estate planning attorney and established a trust. While Carlene knew that she wanted most of her assets to pass to her second husband, Tim, she also knew that if she passed everything to him, her children from her first marriage might get nothing. So, within the trust she made specific bequests to the children of her first marriage, and left everything else to Tim.

In contrast to Carlene’s careful planning, John just never got around to establishing an estate plan. When John died, he died “intestate”, meaning he had no will or other estate planning documents in place. His estate was therefore split up in accordance with the intestacy laws of the state where John passed away. In Massachusetts, John’s estate would not pass entirely to his second wife. Instead, his second wife would inherit a certain sum of money and also a percentage of the rest of the estate, with all his children inheriting the balance of the estate equally. Maybe this is what John would have wanted, but maybe not. For instance, if John owned any real estate in his name alone, his second wife and all his children, from his first and second marriage, would be entitled to a share of that real estate.

One other issue that is common to any family is who will make end of life decisions. In Carlene’s situation, she would have executed powers of attorney as part of her estate plan, naming someone to make financial and health care decisions in the event she was unable to do so. But for John, if there are no powers of attorney in place naming an agent to speak for him, anyone can petition the probate court to be named guardian of John. Perhaps one of his children from his first marriage feels that his second wife is not suited to make decisions for John. While the probate court might ultimately appoint John’s second wife as his guardian, the fight to get there could take a long time and cost untold sums of money.

These are just some of the issues that can arise in a “blended” family. Even in a non-blended, more traditional family, we see issues arise all the time. Estate planning is extremely important in general, but even more so in this context.

 

Michael Coleman

Attorney Michael Coleman earned his Juris Doctor degree from Hofstra School of Law. He is also a member of the American Academy of Estate Planning Attorneys and the National Academy of Elder Law Attorneys, Inc. Attorney Coleman focuses his practice on various estate planning, estate administration, probate, retirement planning, and real estate matters. Lantz Law, Inc. has served the communities of Southcoast, South Shore, Cape Cod, and the Islands since 1969.

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