Yours, Mine & Ours

Introduction

This introduction will define terms that you will need to know as you work through your estate planning. I will also give you some examples of blended families, which you’ll see again in Chapter 11. I’ll conclude this chapter with an attempt to frighten you about the perils of intestacy—particularly for the blended family—which will hopefully move you into action on your estate planning! Dying without a will and a carefully considered estate plan is especially risky, especially for blended or stepfamilies.

Definition of Estate Planning

Estate planning is a process that is ongoing until death. Estate planning is every bit as much a process as life itself.

You may be doing estate planning without even realizing it. For example, when you buy real estate, you are doing estate planning by how you title the property. When you buy life insurance, or get a new job and fill out the beneficiary designations for your employee benefits, you’re doing estate planning. Sometimes, when you open a bank or brokerage account, you’re doing estate planning as well.

Don’t get distressed about the never-ending nature of the estate planning process. Since you’ve chosen to read this book, you’re showing you know how important it is to accomplish all that you can now in your estate planning. I also know that you’ll feel better when you take action and complete and sign your important documents. You’re giving yourself and your family peace of mind and assurances that would not otherwise be there. It would be unfortunate, costly, and unnecessarily painful for those you leave behind if you were to die unexpectedly without an estate plan or with unsigned drafts of estate planning documents.

My purpose is to bring to light all the various sections of estate planning for blended families that you will want to consider and the ramifications of those choices. I will also show you that your documents and decisions will likely need to be updated and changed over time as your family grows and evolves so that you can have your assets and your values be fully expressed and utilized during and after your lifetime.

Remember: Unsigned documents don’t count!

Estate planning involves more than preparing a will. Your estate plan communicates your thoughts and desires about financial management, health care, and property distributions through the drafting and execution of legal documents and beneficiary designations.

Your estate plan involves periodic review and revision to reflect the changes that you will experience throughout your lifetime, such as a new child, divorce, remarriage, loss of a loved one, or any other life-altering event. An estate plan should also be reviewed upon a major change in the law. I advise you to review your estate planning documents every year to see if your plan still outlines what you want to have happen at the time of your death.

Unless a major change has happened in your life, there is no reason to hire a professional to review the documents annually. However, I advise a professional review your estate plan about every five years to make sure you are taking full advantage of any legal changes.

Definition of Blended Family

A blended family is one in which two people are partners and at least one of the partners has one or more children who are not the birth children of the other partner.

Note that throughout this book I’ll be referring to couples as “partners” and not as “spouses.” The simple fact is that many people are opting, for a variety of reasons, to not get legally married nowadays yet remain together as a couple. In fact, pursuant to the most recent census, the fastest-growing segment of the population is unmarried couples.[1] Some can’t legally marry, and some choose not to, yet they are together as a couple and may even have children from that relationship or other relationships. In my opinion, it would have been an oversight to leave out any type of blended family from this book.

I also believe it is important to consider two adults who are looking at mindfully approaching their last wishes and legacy planning as partners, and I treat my clients in this manner. I have seen a lot of damage done to relationships by lawyers and other advisors working with individuals by not taking into consideration the concerns of the multifaceted partnership they comprise.

Examples of Blended Families

This book focuses on the issues that arise with estate planning for blended families. Other books cover general estate planning and sophisticated methods and techniques of estate planning. They’re useful to read in conjunction with this book.[2] Throughout this book, I’ll discuss various estate planning techniques and how those techniques work specifically within blended-family dynamics. Let’s get started by exploring various blended-family scenarios.

Blended families come in all shapes, sizes, and configurations. Perhaps the best-known blended family is the fictional Brady family, of television fame. However, today’s blended families can look quite different from the one we saw on The Brady Bunch. Consider the following six examples of blended families:[3]

Yours, Mine, and Ours: Harry, sixty-two and divorced, marries Marge, forty-eight and divorced. Each has adult children from their prior marriages. Harry and Marge also have a minor son together. They have been married for fifteen years, and Marge stays at home to raise the child, while Harry works to support the family.

Empty Nesters: Bill, seventy-two, is a widower with grown children and a pension, and he is the benefactor of his wife’s life insurance. Bill marries Marlene, also seventy-two, who is a widow. The couple survives on Social Security, rental income from Bill’s condo, and Bill’s IRA.

Eat, Drink, and Remarry: John, sixty-three, marries Judith, thirty-five, as his fourth wife. John has some expensive alimony obligations to his first wife. He also has a son, thirty-seven. Judith, who has been divorced twice, has two sons, eleven and eight respectively, each with a different father, with whom she shares custody. Judith has substantially more wealth than John, while John has far greater income-earning potential as a professional. John and Judith have a separate property prenuptial agreement.

The Brady Bunch: Mike, forty, a widower, has three sons. Mike marries Carol, thirty-eight, a widow who has three daughters. They have no joint children. The children are all minors who live together. Mike owns his own business, and Carol has a substantial separate estate that she inherited from her late first husband.

May-December Relationship: Franklin, eighty, a wealthy widower with three grown children in their fifties, marries Bambi, twenty-six, an impecunious dance instructor who has a seven-year-old daughter. Franklin and Bambi would like to have a child of their own. Franklin has done a substantial amount of lifetime estate planning, and he has given significant wealth to his children and grandchildren.

Nontraditional Blended Family: Marie, forty-six, and Angela, thirty-seven, are a married couple. As a single parent, Marie adopted a child, who is now eighteen. Angela, who has been divorced once, has a ten-year-old child whom she is raising alone with only meager, sporadic child support. Marie stands to inherit money from her parents, but that may be in doubt due to her choice of partners. Angela has the greater income, and she owns the home they live in, although both are contributing to the mortgage payments.

These examples are not intended to be exhaustive. There are many other examples of blended families, all of which have valid, vital concerns when it comes to making sure the needs of loved ones are addressed in life and after death.

Even a quick consideration of each example demonstrates the diversity of blended families. In some of the examples, the couples have minor children living with them. Others do not. One couple has joint minor children. One couple wants to have a child together. In a few of the examples, the couple has children from a prior union who live part-time in their home, while other couples do not have to deal with part-time resident children. In two of the examples, the new partner is younger than the children of the other partner.

Advisors with a narrow focus of what defines family and how to protect assets may miss the various ways individuals in blended families consider all the people in their lives to be part of their family. These concerns need to be taken into account in the estate planning process.

Each of these examples also presents very different estate planning issues. In some of the examples, one partner has substantially more wealth than the other partner. If that partner dies first, should his or her entire estate be held for the surviving partner? This becomes even more complicated when considering the disparate ages of adult children from a prior marriage and minor children from the current marriage, all of whom are concerned about how the estate will pan out for them—whether they say so or not.

In other examples, one partner has substantially greater earning capacity than the other. Should that earning capacity be cut off at death, and how will the other partner be sustained financially? In one of the examples, one of the partners has very little financial experience. Who should manage her assets if she is the surviving partner? One of the couples has a prenuptial agreement—is it consistent with the couple’s other estate planning documents? In another example, one partner has significant obligations to former spouses. How will the obligations be affected should that partner die first?

Simply put, there is no “one-size-fits-all” estate plan for a blended family. Every estate plan for a blended family is different, and the concerns and goals of the families are undoubtedly different as well.

The Perils of Intestacy

You don’t have a will? Guess what—you still have an estate plan, even if you haven’t deliberately and proactively created one yet. Do you know what it is?

What happens if you don’t do any estate planning? The next few pages will scare you into doing some formalized estate planning, if perhaps nothing else will.

If you don’t do any planning, your estate plan is called intestacy (being without or dying without a legally valid will). You might be unaware of it and its particular ramifications in blended-family situations. Under current law, intestacy tends to choose the surviving spouse as the recipient of the bulk of the property and usually puts the surviving spouse in control of the estate. This can be very challenging and potentially lead to hard feelings and possible litigation from any children of a prior union. You may have wanted your children to be considered, and you may even have made promises to them verbally. In the past, the law strongly favored children of a deceased spouse over a subsequent spouse, but this is no longer the case, even despite the increasing incidence of divorce.

In addition, if you are not married to your partner, you may receive nothingunder the intestacy laws of your state,[4] although this appears to be changing very slowly. It is still essential for unwed partners to do their estate planning if either wants the other partner to share in his or her estate.

Medical and End-of-Life Decisions

Who will make medical decisions for you if you cannot?

As bad as intestacy is, not doing any estate planning can actually be worse. Suppose you’re in a coma, or you have dementia; if you don’t have an advanced health-care directive or power of attorney for health care (these names are interchangeable—different names are used depending on where you live), your spouse, partner, parents, or children may have to make those decisions through a court procedure called guardianship. This adds complexity and cost to a situation that is already emotional and painful, which could have been easily handled with an advanced health-care directive.

In a blended family, particularly one that is not close (e.g., the partners got together after the children became adults), health decisions can create a very difficult situation as your life is in the balance. For instance, your children may question your current partner’s motives in making certain health-care decisions for you. It could get even worse if you aren’t legally married. Your partner may have no say whatsoever; doctors might not even speak to your partner (due to patients’ privacy rights concerns), and your partner may not even be allowed in your hospital room!

While disagreements could still occur with an advanced health-care directive in place, the directive states the person you wish to make the final decisions. Without an advanced health-care directive, you are doing your partner no favors.

Who will decide to discontinue life support if that is your wish? Again, your partner and your children may make that decision, but they could encounter difficulties if family members disagree among themselves or if the doctor or hospital balks at the decision without a court order. Cases involving these situations have gone all the way to the United States Supreme Court, which can get very expensive in both legal and medical fees—not to mention how emotionally draining and charged these issues are. If you and your partner aren’t legally married, your partner, who may know what your intentions are relative to being maintained on machines, may have no legal right to make those decisions on your behalf.

Financial Decisions

Who will handle your business and financial affairs if you aren’t able to do so?

Without a durable power of attorney for property management, your loved ones will be stuck with an onerous court procedure called conservatorship, which applies to the management of property for someone who can’t manage his or her own property and hasn’t appointed someone to represent him or her. Conservatorship is not only expensive, but it makes all your financial and personal information a matter of public record that anyone can access. Conservatorship can usually be avoided by having a well-drafted durable power of attorney and/or a funded living trust, the latter of which I discuss in Chapter 8.

There are things that a durable power of attorney can accomplish that probably can’t be done in a conservatorship proceeding. Again, an unmarried partner may have no recourse if you become incapacitated because the incapacitated partner’s children will have priority to be named conservators. Indeed, this contingency could render the unmarried partner homeless if the conservator sells the home in which the partner is living. (I wouldn’t include this grim scenario if I hadn’t witnessed it firsthand.) My commitment is to educate, inform, and mitigate unnecessary pain and suffering in the face of grief and loss.

If you die without any estate planning, who receives your assets and in what proportion will depend on the type of property and its titling. Property that passes by will or by intestacy is called probate property. This comprises most of what people have, such as personal property, vehicles, most bank accounts, some real estate, stocks and bonds, and the like.

If your property is titled as joint tenants with rights of survivorship, the property won’t need to go through probate.

However, how property is titled will determine whether that property is subject to probate in your state or province. If property is titled as joint tenants with rights of survivorship, the property won’t go through probate but instead will pass to the surviving joint tenant, no matter what your will or trust says.

When you purchase real estate as a married couple, you’re liable to get a joint-tenancy deed unless you specify that you don’t want it. This is because realtors and escrow officers generally do not understand the potential ramifications in blended families related to the various methods of owning real property. It is important to note that it makes a big difference whether you live in a community-property state (where each spouse owns and has the right to give away by will an undivided one-half interest, which the owner spouse could give to someone other than the surviving spouse) or common-law jurisdiction (where spouse co-owners usually are joint tenants, which means that the surviving spouse becomes the full owner of the real estate by virtue of surviving the other spouse).

It is essential in good estate planning for your estate planner to review real estate deeds to determine how that property will pass at death. He or she also needs to know how you want to go about addressing these very important concerns.

While joint tenancy helps take care of the surviving partner, it could also impact the surviving children. The children of the first partner to die could lose out entirely on their inheritances, as the children most likely to receive assets shared in joint tenancy are the children whose parent outlives the other. When animosity exists between partners and their stepchildren, this becomes a real concern.

Intestacy laws used to favor the children, but today, they generally favor the surviving spouse, which may seem odd given the rate, ease, and speed of divorce. Again, with very few exceptions, if you and your partner aren’t legally married, the surviving, unmarried partner will generally receive nothing, even if that partner has been a partner for a long time. Probate property is generally divided between the spouse and children, although in several jurisdictions, the spouse could receive it all. Moreover, for estates that will owe federal estate tax, there can be adverse federal estate tax consequences to dying intestate, primarily through loss of the marital deduction. Intestacy is rough justice for partners in blended families; no one should die intestate.  

Nonprobate Property

Nonprobate property includes life insurance, annuities, retirement plans, and US Individual Retirement Accounts (IRAs). However, it can also include pay-on-death (POD) accounts (sometimes referred to as transfer-on-death [TOD] accounts).

Most nonprobate property passes directly to the person named in a beneficiary form to receive the asset at your death. In other words, nonprobate property doesn’t pass by will. Quite often, clients sign these beneficiary forms without even realizing that they are doing estate planning, especially since most people don’t save copies of the beneficiary designation and almost never think through the ramifications of the beneficiary designation.

Take a minute and consider your current situation. Have you confirmed that your former spouse is no longer a beneficiary of your nonprobate property, which you aren’t required to, and do not wish to leave to, him or her? In most areas, if you die while a former spouse is still named as a beneficiary, that former spouse will be entitled to the proceeds of the account. There is nothing that anyone can do about it, unless your former spouse willingly gives it up. Cases like this occur all the time, so take action to prevent this from happening in your situation.

Name contingent beneficiaries for your nonprobate property so that if your original beneficiary doesn’t survive you, your nonprobate property won’t pass to your estate.

One area of nonprobate property that gets frequently overlooked is backup beneficiaries, which are called contingent beneficiaries. Many people don’t get around to naming contingent beneficiaries at all. These asset documents usually specify (buried in the boilerplate language of the policy or plan document) that if your beneficiary doesn’t survive you, the proceeds pass to your estate. In other words, they become probate assets. As such, these assets are subject to the same intestate problems discussed earlier concerning passing, pursuant to the state or province’s estate plan for you (intestacy), not your own.

If this isn’t enough to get you motivated to get your documents in order, things can actually get worse. Usually, your creditors cannot reach nonprobate assets. However, if these assets inadvertently become subject to probate because you didn’t name a contingent beneficiary, your creditors could lay claim to these assets too. If these assets are retirement plans or IRAs, income tax on the entire proceeds could be due a lot sooner than it would have had there been some thought given to contingent beneficiaries.

Obtain advice from a professional when naming beneficiaries of nonprobate property.

Although I discussed it earlier, it bears repeating: property titled as joint tenants with rights of survivorship (or as tenants by the entirety) is also nonprobate property. Again, if you want your children to get your part of that property, you better count on being the surviving partner for that to happen. Otherwise, your children will receive nothing unless the other partner, who will have no legal obligation to your children, agrees after you’re dead to give them something. In estate plans that don’t involve both partners and that don’t take into consideration all the concerns, this very rarely happens.

Couples in blended families need to take the time to truly listen and understand each partner’s motivations and concerns related to all the children in their lives. By doing so, much can be done in the estate plan so that the surviving partner is well provided for, and the wishes of how the estate could pass to the surviving children from prior relationships are met. I work with people to design scenarios and structures where there’s a win-win feeling, as opposed to the more adversarial, protective, “mine versus yours” mentality that so often shows up. By keeping the mindset of “yours, mine, and ours” foremost in the conversation, new possibilities and solutions can emerge, and everyone can feel a sense of alignment.

What Makes Estate Planning for Blended Families So Hard and So Necessary?

Estate planning can be difficult even for people who have had only one partner. When people take on new partners, especially those who have children of their own, the complexities in estate planning multiply exponentially. While I know that I’m stating the obvious, it is somehow overlooked in terms of taking action: every one of us is going to die.

Many people believe that they don’t have enough possessions to necessitate estate planning. However, everyone has something that someone else wants when they are gone. This could range from family keepsakes to family companies. While I use the term “blended families,” I’m well aware that in many instances, your family can feel anything but blended, where there may be little or no relationship between your current partner and your children from previous relationships.

Oftentimes, one of you may be the glue that keeps the blended family together. Guess what can happen after you die? Without a plan shared in advance that honors all your loved ones, survivors often fight over virtually nothing of value. Despite the fact that many partners in blended families believe that they must make an excruciating choice between their partners and their children in their estate planning, spelling out who you want to get your belongings is far superior to doing nothing and letting them fight about it after your death. There are ways to include all of them so that there is a sense of value for the people in your life and what matters to them. This will do wonders to minimize arguments about “things.”

Action Steps

Review any estate planning documents you have that are signed and legally binding. Do they reflect your current wishes and current family structure? Note any changes you see that need to be made and write down any questions that may have occurred to you by reading this section. You may be considering some of the following questions:

• Is our real estate in joint tenancy, and is this taking care of both of our most important values and concerns?

• Who are the written beneficiaries of our individual and shared nonprobate properties? This includes life insurance, annuities, retirement plans and Registered Retirement Savings Plans (in Canada), IRAs (in the USA), and pay-on-death (POD) accounts. Are these the beneficiaries I want now? Do we have backup beneficiaries named?

• Determine the status of your power of attorney and durable power of attorney or advanced health-care directives. Are they in place and with the people you want to be in those roles? Are those people aware of their roles and what is required of them? Are they aware of your expressed wishes?

Put all these relevant documents in a locked, protected file and make copies for both yourself and your partner. Make sure the relevant parties in your estate plan know where these documents are located.

Create a binder with tabs for each section so that as you go about your estate planning, all the information you are gathering is easily accessible in one place for yourself and your family members should something happen to you or your partner unexpectedly.

Schedule specific appointments in your calendar for you and your partner to tackle estate planning questions and concerns. If it’s scheduled, you’ll take action and get it done! I recommend one to two hours bimonthly, or three to four hours once a month, during which you dedicate your focus and attention to your specific estate planning questions until you determine answers and strategies that you can implement. This will expedite your work with your attorney and accountant while also helping them do their jobs more effectively and to your satisfaction—and it will save you a great deal of money. Make it a goal to have one aspect of your estate plan decided and signed every two to three months so that you are making regular, steady progress toward your overall goals.

Most couples know how important it is to do their estate planning, and yet they tend to avoid that which is uncomfortable and that which they do not understand. Their fear of making a wrong or poor decision often causes them to not take any action at all. This causes them to make a default decision to go into intestacy, which is not a choice anyone would want to make, given the ramifications.

One coaching strategy I have seen work well for couples committed to making proactive legacy planning choices is to incorporate fun and rewards during the estate planning decision making. Some couples enjoy scheduling time on a Saturday afternoon, and then afterward going out on a date as a reward. Other couples take their notebooks and resources with them to a weekend getaway and spend time planning for their future as they also plan for what will happen after they die.

Couples who are serious, or who want to expedite this process, often hire consultants to keep them on target to make sure they are addressing that which matters most to them in ways that they would not otherwise be aware. By having committed, ongoing, scheduled meetings with a consultant, there is accountability along with an investment of time and money that helps you stay on track to get your goals achieved. Hiring a consultant for estate planning is like hiring a personal trainer for when you want to seriously get into shape!

[1] Chanell Washington, “Unmarried Opposite-Sex Couples Living Together More Likely Than Married Couples to Both Work,” referenced at https://www.census.gov/library/stories/2021/06/unmarried-opposite-sex-couples-living-together-more-likely-than-married-couples-to-both-work.html, June 9, 2021.

[2] See the Appendix for recommended titles.

[3] See Chapter 11 for more detail about each of these types of blended families.

[4] In the United States, every state has its own laws of intestacy which can differ greatly. You can check out the intestacy laws of your state by going to www.mystatewill.com.