What a shame — and tragedy! We work hard to make things right and equitable for our re-partnered selves and beloveds, and for all the blended family’s members, resolving all the issues that we’ve been miserating about recently, plus some of your own. But often when incapacity or death grabs us, sometimes unexpectedly and never conveniently timed, everything unravels.
Horror stories abound. No doubt you’ve witnessed some. The wrong people acquire the wrong rights, authority and assets, as well as burdens, sacrifices, and expenses. Loved ones’ feelings, special needs, fair treatment and interests are shattered. And it’s all contrary to our hopes, instructions, and intentions.
How come? You know: Unaware, we neglected to fix our estate plans to handle re-partnering’s unique additional bundle of issues.
Or, incredibly, our old plans for our ex’s and the children of that union still reign, a debacle that’s worse than having none at all.
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From author Joseph Warren Kniskern, Esq: “The critical planning is not only for wealthy individuals -- Everyone has a responsibility to exercise sound planning for the benefit of the family.”
Everything’s vulnerable: Property titles, beneficiary and pay-on-death designations, powers of attorney, property and ethical wills, health care directives, authorized user authority, trusts, marital and co-habitation agreements. In fact, all experts agree that it’s far better to replace the entire set of estate plan instruments, because the existing ones would require countless amendments, rendering them unfathomable and legally vulnerable. To replace costs no more, anyway.
We’ve already mentioned some issues; a few warrant amplification. And there are some major other ones:
The titling of our assets – “Yours, mine, ours, or theirs” – that we recently examined, is so vital to the road map of future developments, especially at-death ones.
Whatever we do or don’t do, “Caveat both bequeather and bequeathee” if disclosure, consent, and written agreement are absent.
The “will-killer”: Spouse’s elective option:
Our at-death spouses can override our wills by electing to take a third of our net assets, including those that are in our revocable trusts or passing via a beneficiary or pay-on-death designation (except life insurance). Many of us bequeath to our children the pre-existing assets that we brought into the new union, but understandably and in fairness wish to leave to our descendants, thus reducing the New Beloved’s share. That’s OK if N.B. accepts it in the beginning, but not OK if NB changes his/her mind, quite common if conflict develops. Or NB rebels because he/she didn’t even know about it. Or elective option isn’t waived in a written nuptial agreement.
▪ Various irrevocable trusts that bullet-proof the bequests and can reserve continuing income and principal for NB’s consumption; inter-vivos (during lifetime of the donor)
▪ Gifts of the assets, but be aware of gift taxes;
▪ Joint ownership with right of survivorship;
▪ Ownership with rights to use or possess reserved to N.B.;
▪ Life insurance, perhaps leftover coverage that’s no longer needed to support the kids and the ex, can fund their bequests instead, thus reducing or eliminating the hit on N.B.’s share, or vice- versa.
Who gets the key to the vault?
So often our children’s other parent gets custody at our deaths, but we don’t want to grant control of our precious child-support assets to O.P., and granting it to N.B. would create resentment and unfair awkwardness. Again, trusts to the rescue, but with third-party trustees.
Who are “my children”?
When our beneficiary, P.O.D. and bequest designations say “my children”, we know who we’re talking about. But, unless we’ve clarified that in the documents, or by validated memorandum, we’re seeding storm clouds. Does it include adopted offspring from another union, or a spouse’s children that we love as our own but didn’t parent biologically? Conversely, when we correct that to read “Children of my marriage with ____”, we’re disinheriting children of other marriages, including N.B.’s. So many blended family children whom we love and who love us as “parents” get left out by imprecise wording and absence of clarification by memorandum or ethical will.
Sure, it can be logical, desirable, and compassionate to serve as a family member’s personal representative or administrator, attorney-in-fact, health care agent, trustee, or even guardian or conservator. But, as you might have read in my rants, there can be solid reasons to decline a fiduciary appointment.
To that list, add the bundle of re-partnered and blended-family issues: Conflicting interests, animosity from disgruntled ex’s and their sympathizers, minefields embedded in prior relationships’ judicial decrees and marital agreements, heavy-duty emotions such as jealousy and resentment from “the other side”, risk of having assets decreed to be “marital”, and hostile litigiousness and greed.
Picture this: You and N.B. live here, but the children are scattered and infrequently communicative. Who should have the life-or-death medical power of attorney to “pull the plug” on you: N.B.? The kids? Both? Does Ex still have it? Where there’s conflict, physical and rapport distance, conflict of interest, or lack of closeness or trust among them, are you creating an ugly quandary?
In virtually every family, but especially in blended ones, various shades of that scenario impact on all of the other fiduciary roles, too, plus questions of competence, liability, exposure to litigation, and unwanted law-mandated “thou shalts” and “thou shalt nots”.
When those heartaches can arise, let’s not dump them on anyone that we love. The alternative, of course, is to have co-fiduciaries representing both “sides” – maybe -- Or professional ones, interested, knowledgeable, compassionate and qualified, individual or corporate.
A custom-tailored durable family power of attorney can be the comprehensive enabling and empowering instrument. Plus, we explain and justify our reasoning via memoranda or ethical wills.
Secondary Secondary Beneficiaries
Remember our discussion about re-beneficiarying our life insurance, annuities, retirement and pay-on-death accounts, and anything else that by-passes the probate estate and the will? And the need to be precise about the second (contingent) beneficiary designations, too? N.B. needs to do that, too, of course, but also to handle the second-death situation, so that residual benefits eventually will be directed back to our intended descendants.
More goodies from trusts!
We’ve said a lot about personal trusts. They’re so useful and beneficial, even more so if we set them up before re-partnering and both new partners acknowledge them in the pre-nup. In the re-partnering and blended-family context, here are a few more points not yet mentioned:
▪ Providing funding and its management in custody cases, thus avoiding guardianship procedures and court supervision.
▪ Establishing and bulletproofing assets and their management for each beneficiary, or for two or more families’groups via multiple trusts, insulating from multi-family issues.
▪ Providing income and security for new partners for specified purposes or for life, while also benefiting and eventually distributing the assets to descendants.
▪ Directing and assuring the disposition of family “dynasty” heirlooms, valuable artifacts, the family home.
▪ Providing management of assets over time, such as the rest of our or NB’s lives, to assure proper care of descendants’ eventual inheritances.
▪ Helping the most fortunate among us (The Federal Estate Tax personal exemption now is over $ 5,000,000, and marital deduction still is available) to avoid or minimize gift and estate taxes on the transactions that we devise to resolve the issues.
Several thousand words ago we quoted pundit Ann Margaret Carroza: “Love may be lovelier, but it’s a whole lot more complicated the second time around”. Sure is!
Contact Gary Newman at firstname.lastname@example.org. Your ideas and comments are always welcome.