As a family law and estate planning attorney here in Texas, I often see how the two bodies of law intersect. After I represented Amy in her divorce, I encouraged her to draw up an estate plan to take care of her children in case something happened to her. She didn’t want to think about it so she didn’t follow up. Then a few years later she called me.
“Chris, it’s Amy Burnett. Remember me from the divorce a few years ago, well I’ve met somebody and we’re going to get married. Yup, giving marriage another try,” she said.
“Yes, yes, of course I remember you. I’m glad to hear that Amy. Are you just calling to share the good news or do you need some legal help?” I asked.
“Well, you got me, I do have some legal concerns. I’m sorry I never followed up about that estate plan. After the divorce, I just wanted to move on with my life, not think about my death,” she explained. “But now, my fiancée, has his own set of kids, who I love, and he loves mine, but you know, they are technically not ours, and well, I’m concerned about the two of us having different opinions about how to share our assets with all the different kids.”
“I know it’s hard to think about but it sounds wise to hear you state your concerns so directly. Does that mean you are ready to get your estate plan going now?” I asked.
“I’m not sure I’m ready, but I am calling to ask you about it. I’ve been warned that blending families can get complicated and even advised to get a prenup by a friend,” she said.
“Interesting Amy, what do you know about estate planning?” I asked her.
“Not much, only that it scares me, but I should do it,” she told me.
The Importance of Estate Planning for Families
“Amy, many people are scared to do their estate plan. But your courage is coming at a good time. Please let me give you an overview about estate planning for families,” I said. “Then once you know more about it in general, we can assess what’s best for your circumstances.”
Families just like Amy’s often put off estate planning. Often they think it’s something for “later” in life. Usually, they just don’t want to think about it. But life is unpredictable. Estate planning for families isn’t just about what to do with your money. It’s about caring for loved ones, including your children and even your grandparent, if something unexpected happens. Once in place, it gives you peace of mind knowing your family’s future is secure.
Estate planning for families isn’t just about transferring wealth; it’s also about asset protection, transitioning businesses you’ve built, and implementing thoughtful estate planning strategies to address your special needs. Estate planning allows smoother transfers and administration after incapacity or death, potentially saving time and money, especially with a revocable trust. Proper estate planning also prepares for medical decisions and guardianship provisions for young children.
Many families believe they’re prepared but overlook important details. This could lead to complications in the probate process, resulting in unnecessary delays and costs. Without a proper estate plan, loved ones may face delays and expenses in probate court, which can add stress during an already challenging time. But with a carefully drawn-up estate plan, a solid foundation is in place ensuring stability for your family’s financial health and peace of mind. That’s why estate planning is for everyone, especially a young family just starting their journey toward building financial stability.
Estate Planning for Families: Stress-Testing Your Plan
How can you ensure your planning is sound? Financial plans must be resilient, like a building. They must withstand stresses like unexpected tragedy or loss. Just as an engineer stress-tests a bridge, you can stress-test your estate plan. This involves three steps to verify your financial house is in order.
Step 1: Ensuring Your Wishes Are Clear
First, ensure your estate planning documents are current and reflect your wishes. This includes your powers of attorney which can be used to make decisions for you.
If your powers of attorney are over three to five years old, financial institutions may hesitate. Update them regularly. Review each form. Determine if your representatives have changed or if you need separate documents.
It is also important to review and update your healthcare directive and beneficiary designations to ensure that beneficiaries receive their inheritance as planned.
For young adults, having essential legal documents is key. This could be updating property titles after moving or accounting for new children, death, or divorce.
These legal documents should also specify how your small business will be handled, should you have one. Consider all your assets in estate plans, such as checking accounts, retirement accounts, retirement planning funds, and credit cards.
Step 2: Secure Your Vital Information
Make sure critical information is accessible in times of need. Keep your estate planning documents in a secure, accessible place. Several trusted people, such as your attorney, a family member, or a close friend, should know about this location.
Account for every eventuality. Do both parties have access? Is there an alternative plan if something happens to both parties?
This critical information includes passwords to online accounts, social media, and cryptocurrency. List all social media accounts. Many young adults’ deaths leave loved ones locked out of accounts, integral to their lives. Too many people don’t plan for management of their social media accounts until it’s too late.
Step 3: Prepare for the Unexpected
Thinking about funeral arrangements and final wishes well in advance saves your family stress during an already challenging time. Clarify your desires about funeral or cremation arrangements.
Let your loved ones know where healthcare documents are. Have plans and considerations in place. For example, do they want a wake at a former religious affiliation?
What if death occurs out of town? Don’t overlook this planning; life is rarely predictable. Specify a funeral representative authorized to make final decisions to avoid disagreements. Estate planning attorneys are available to help if needed.
Detail how you want personal property distributed to avoid family disputes. Think about family heirlooms. Be detailed, including photos, and state their locations.
Pre-planning and communication minimize conflicts among grieving relatives. It alleviates potential disputes and empowers loved ones to make decisions in accordance with your wishes.
Estate Planning for Families: Additional Considerations
The three-step process offers a framework. However, other aspects of family estate planning require attention. For young couples, affordable options exist, from term life insurance to simple living will. Plan ahead before events like long trips using an estate planning checklist. These measures guarantee someone can handle your affairs, from pets to bills.
Ensure your healthcare, including special medications, is addressed. Provide access to legal documents: mortgages, car payments, insurance, retirement plans, and personal loans. This empowers responsible family members to take care of your affairs if something happens to you. Avoid storing this information digitally.
Blended families can make estate planning more complicated and may have more questions about inheritance. Questions surrounding a family trust may arise.
Estate Planning for Families: Essential Steps for Blended Families
Blended families often face unique estate planning challenges. Combining families adds layers of complexity and additional sensitive issues.
Open Communication: The Foundation of Success
Start with open communication between spouses. Each person should involve their financial advisor and estate planning attorney for support.
A collaborative approach benefits the whole family. Having everyone up-to-date, with buy-in and understanding, helps things go smoothly, especially when it comes to managing personal finance and estate planning. Discuss goals and concerns freely. Consider children from previous relationships, varying financial situations, and personal values.
Protecting Each Spouse: Legal Considerations
In blended family situations, couples often consider prenuptial or postnuptial agreements. These agreements aren’t just about separating assets. They ensure fairness and prevent accidental disinheritance. This approach balances merging families with securing individual legacies. Transparency among family members helps prevent misunderstandings.
Consider choosing one or two family or friend trustees. This adds a layer of security and helps address unique scenarios, such as guardianship provisions for children.
Providing for Minor Children: A Balancing Act
Establishing clear provisions for children is paramount in blended families. This might include trusts for medical care and related decision-making.
Consider “Guardianship Nominations” and “Standby Guardianship Designations” to ensure financial stability and safety. Estate planning offers several avenues for providing for minor children. You can designate guardians for minor children, arrange for staggered distributions, or use specific trusts.
For example, you can create trusts earmarked for educational expenses or life/home purchases upon reaching certain milestones. With careful estate planning, everyone can be provided for fairly. Be sure to address everybody’s questions proactively and update documents if necessary.
Clarity and Support for Step-Parents: Navigating Relationships
Even in harmonious blended families, clear estate planning provisions can smooth out unforeseen bumps in the road. If one spouse passes, it will impact the surviving partner and their stepchildren.
Carefully documenting your wishes in your estate plan regarding such situations provides clarity and addresses “what ifs.” Consider creating a separate trust from your original marital trust for each partner. This allows family members and beneficiaries to raise reasonable inquiries and request related files after important milestones or events documented in the trust.
FAQs about estate planning for families
What is the 5 by 5 rule in estate planning?
The 5 by 5 rule, or power of appointment, minimizes trust tax obligations. When used effectively, it reduces estate tax. This is achieved by excluding assets held in specific trusts. It grants beneficiaries limited control over asset management.
What are the 7 steps in the estate planning process?
While there may be more or fewer factors based on individual needs, simple estate planning often involves these seven steps:
1. Set your goals: Determine what you want to accomplish and consult financial counsel before meeting with estate planning attorneys. Consider each milestone event and ensure your legal trusts and financial instruments are coordinated and transparent.
2. Take inventory of assets: List everything you own, including bank accounts, real estate, personal property, digital assets, and your net worth. Be specific, don’t estimate; list and value with evidence.
3. Choose beneficiaries: Select who will receive your assets upon your passing. Consider how family dynamics may influence this decision.
4. Pick your fiduciaries: Choose a trust administrator to act on your behalf if you pass away.
5. Create or update necessary documentation: This includes a revocable living trust, last will and testament, financial power of attorney (healthcare, finances), and an advanced directive stipulating healthcare-related scenarios.
6. Fund accounts and transfer assets: Ensure compliance with all stipulations of your legal documents. Consider money market accounts and retirement plan options.
7. Monitor and review: Regularly check your estate plan to ensure it remains current with changing state laws and life circumstances. Be sure all relevant organizations are informed of any changes.
Address special situations promptly to minimize confusion among family, loved ones, and involved entities.
How should inheritance be split with mixed families?
Estate planning in mixed families can be complex. Fair doesn’t always mean equal, especially with varying parenting dynamics (full-time vs. part-time). Keep in mind educational expenses and other burdens.
Open communication and tough conversations are crucial. Seek legal advice for these sensitive discussions. Consider using a financial mediator who can help preserve family relationships.
Compromise and flexibility are essential. An experienced lawyer can help navigate family issues in a third party capacity. These conversations should occur while open dialogue is possible, allowing for smoother planning.
What is the downside of a family trust?
A family trust involves paperwork, upfront costs, and ongoing administration. This includes annual income tax filing by the grantor. You lose some control over assets in a trust, depending on the type.
Irrevocable trusts mean you no longer own or control the assets, which reduces estate taxes. Flexibility and access to assets may be limited, varying with the circumstances and type of trust.
Costs depend on asset size, family complexity, and other individual factors. Consult a tax or financial expert to assess if benefits outweigh costs in your situation, as costs do change over time. They can help determine the best way to allocate assets from things like money market accounts to avoid gift tax.
Conclusion
Family estate planning can feel overwhelming. Taking it step-by-step and putting it in place brings peace of mind. Protecting loved ones is more than just about finances and tax planning.
Consider family dynamics, especially with relatives who don’t interact regularly. Don’t make assumptions about what people will think and do when you are no longer alive. Estate planning with legal, accounting, or financial professionals can avoid conflicts.
Careful planning secures your legacy and provides a foundation for your family’s future. By addressing healthcare decisions, financial power, and family dynamics, your plan can truly benefit those you love.
Is Amy Ready to Make her Estate Plan?
“Chris, a lot of that flew over my head but a few things really hit home,” she said.
“I’m here to catch everything that goes over your head for you but I’d like to know what stood out to you?” I asked.
“It’s the blended family stuff. I know it’s going to make things more complicated,” she said.
“That’s right Amy. It’s one of the tough parts of getting remarried when you and your new spouse already have kids. Does your fiancée have an estate plan?” I asked.
“I think so, he mentioned a trust for one of his kids who is special. But I didn’t want to ask anything more about it, I was just hoping we could do it together once we got married,” she told me.
“Okay, so it sounds like you have nothing in place, he has something in place, and you’d like to do it together when the time is right. I understand and respect your wishes,” I told her. “Getting clear on what you want is vital to this process.”
Building a Path Together: Estate Planning for a Blended Family
“So what should we do?” she asked.
“First, I think you need to set up your own estate plan so both of your young and adult children are taken care of before you get married again. I’ll send you a questionnaire about your assets and all the issues you need to consider to get something in place to protect the kids interests. Once we have that in place, you and your fiancée will be on equal footing, with separate plans in place. Then we can reevaluate a new plan together once you are married,” I said.
“Okay, well what about a prenup like my friend suggested?” she asked.
“Amy, it’s a possibility. You need to discuss that with your fiancée. I know it’s not an easy conversation but present it as part of your thinking about estate planning together. If you have a prenup with regard to your pre-marital assets, it can help streamline the joint estate planning you eventually hope to do together. If you start the conversation about a prenup as something that is aimed at helping you create a joint estate plan in the future, it might make the conversation easier. So what do you think, are you ready?” I asked.
“Chris, I’m more ready than ever. I don’t think I’ll ever be eager to think about what will happen to my stuff after I die, but I am ready,” Amy said. “Please send me that questionnaire. I’ll be sure to discuss all this with my fiancée as soon as I can find the courage. You helped me understand why it is so important, so I do feel ready.”
“Great Amy. I think you’ll feel a whole lot better about blending your families once your estate plan is in place,” I told her.
Schedule a Consultation with our Dallas Law Firm to Learn About How to Secure your Family’s Future in Texas
Thinking about how to secure your family’s future after you pass away or become incapacitated can be stressful and challenging, but you do not have to face it alone. Our team of experienced Dallas family attorneys is ready to provide you with the guidance, support, and legal advocacy you need during these challenging times.
Whether you are trying to secure your family’s future or have other specific estate planning concerns, we are here to help you every step of the way. We welcome you to schedule a consultation to discuss your situation and estate planning objectives. We can answer your legal questions and discuss how we can help you move forward. Call our law office at (888) 584-9614 or contact us online to schedule your consultation.
