TuckerAllen recently hosted a virtual town hall discussing the estate planning challenges facing blended families.
The town hall was hosted by moderator Scott Trout and featured a panel of TuckerAllen estate planning attorneys who explained why estate planning can be more complicated for blended families and reviewed strategies families can utilize to help.
What is a blended family?
Generally, a blended family is a family consisting of a couple and children from current and previous relationships.
Blended families take several forms:
- Married couples in which one or both spouses have children from a previous marriage.
- Families with children who are in second or subsequent marriages and who have children from previous marriages.
- Families with children whose spouses have children from previous marriages.
With approximately half of American marriages ending in divorce and 60% of remarriages going that direction, blended families are increasingly common.
How is estate planning different for blended families?
Blended families can face complex estate-planning challenges. Issues can arise between spouses or between children and their spouses. Typically, individuals in blended families want to provide for the spouse as well as the children from the previous marriage. In some cases, they also want to provide for the children from their spouse’s previous marriage.
What kinds of estate planning strategies can be helpful for blended families?
Spray Spendthrift Trusts
- A spraying trust, or a sprinkling trust, is used when the grantors really trust the trustee that they’re appointing, leaving a lot to the trustee’s discretion – doesn’t have to be equitable distributions; allows the trustee to decide what is most beneficial for each beneficiary
- Spendthrift trust provisions places restrictions on a beneficiary’s ability to access trust principal (the stuff in the trust). Separate trustee managing the trust for the beneficiary; limitations on how the assets in the trust can be used.
- Most commonly, this is to protect a child’s share from a son-in-law or a daughter-in-law that has children from previous marriage (or otherwise, a spendthrift/has difficulty keeping finances); and you want to make sure that what you leave to your child will only go to your child and not to their spouse/stepchildren.
- Child can have control over the trust, but assets are not available son-in-law/daughter-in-law.
- Trust assets can be used only for blood descendants.
- Child’s assets in the trust are protected from creditors.
- Trust can terminate upon child’s death, and remaining property can be paid to child’s descendants.
The panel also dives into Irrevocable Life Insurance Trusts (ILITs), FLPs, and LLCs, Life Estates, Qualified Terminable Interest Property Trusts (QTIPs), Disclaimer Trusts, and Joint Pour Over Trusts, and how each one can be used by blended families for estate planning purposes.