According to the Pew Research Center, more than 40% of American adults have at least one “step-relative”— that is, either a step-child, a step-sibling, or a step-parent. I estimate a similar percentage of my own clients belong to this demographic. Each of these blended families has a unique plan for how assets are to pass at death. Some clients want to treat each of their children, together with their step-children, on equal footing. Other clients say, “We have agreed to pass all of our assets to our own children at death.” That is, these client intend to omit one’s spouse altogether. Many of these clients are surprised to learn that, in the absence of a valid antenuptial or postnuptial agreement, Minnesota law is not well-suited for this plan. By reason of Minnesota’s “spousal elective share rules,” the surviving spouse is entitled to certain assets and can exercise certain rights to receive a deceased spouse’s assets even if a Will or Trust says otherwise.
Here are a few strategies that we have employed to assist our blended families to provide for their children:
- Make Lifetime Gifts to Children and Grandchildren: For my clients who have the financial capacity to do so, a husband or wife could make significant lifetime gifts for the benefit of their own children or grandchildren, with the balance of assets passing at death to one’s surviving spouse. For example, a mother or father could help each of his children with the purchase of a home, or create an irrevocable trust for the benefit of such children or grandchildren. One client is paying undergraduate college costs for all his grandchildren. In each of these cases, the clients make it clear to the family members which assets will be gifted to the children, and which assets will be left to the surviving spouse.
- Dedicate Certain Assets for Children or Grandchildren at Death: Clients should specify which of their assets will be allocated to children or grandchildren at their death, even if his or her spouse survives. A client could direct that, if she dies before making good on the desire to pay for the educational costs of her grandchildren, she would fund separate 529 Plans for the benefit of these grandchildren. These families might dedicate certain unique assets, such as family business ownership interests, the family cabin properties, or other assets to children or grandchildren, even if the spouse survives.
- Use of a Marital Trust or Family Trust: It is not possible, for many of our clients, to make substantial gifts to children and also provide primarily for the surviving spouse. In fact, if I am representing both a husband and wife jointly on their plans, it is my objective to make sure that the surviving spouse has sufficient assets to maintain the same standard of living. We will often implement a “Family Trust” or “Marital Trust” structure following the first death so as to provide primarily for the surviving spouse during the surviving spouse’s lifetime, and then distribute remaining assets from such trust(s) to and among the families members following the death of the surviving spouse.
Finally, it is it is critically important for blended families to clarify (i) the disposition of tangible personal property and (ii) the appointment of alternative decision-makers to serve in the event of incapacity. Particularly where an adult child and a spouse are both involved in health care decisions, it is important for a client to specify his or her wishes for appropriate medical care. Our firm is honored to be a part of these important discussions within blended families, and welcome your questions.