Blended Families, and Their Impact Estate Planning
It is not secret that modern society has slowly drifted from the traditional concept of a “normal” family. Statistics undeniably show that recent generations have engaged in higher rates of both divorce and children out of wedlock than previous ones. These practices often result in the formation of “blended families,” or family units comprised of individuals of various backgrounds. While some of these families get along better than others, they all pose risks from an estate planning standpoint. Many do not understand how the language of their wills and the laws of Texas can impact inheritances in a blended family. Perhaps the most pertinent of such laws comes from Chapter 123 of the Estates Code, which provides that if a testator (will maker) divorces his or her spouse, much of the will shall be read as though that spouse had predeceased the testator. The “Subsequent Divorce” law is a more well-known legal concept, but the reality is there are several family situations that can have tremendous impacts on the disposition of one’s estate. Below are a few examples, along with some thoughts on reducing the chances for problems.
1. Intestacy With Blended Families.
It is very common in today’s society for an individual to get married, have children, subsequently leave that spouse, and finally die in the company of a new spouse. In the absence of a will, subsequent marriages can greatly impact who ends up with the deceased’s estate. Texas is a community property state, so (generally) everything acquired during a marriage is split between spouses. Under Chapter 201 of the Estates code, if a person dies survived (1) only by a spouse, or (2) only by a spouse and children of that spouse and the deceased, then the surviving spouse gets the deceased spouse's entire ½ of the community estate. If, however, the deceased person is survived by a spouse and children of another relationship, then the deceased spouse’s ½ community estate is split between the surviving spouse and the deceased’s children. This can be a shock to couples who assume the community estate is always left to the surviving spouse.
Separate property is also impacted by subsequent marriage. Suppose a man gets married and has children before losing his wife to disease. After grieving, he meets and marries a new partner. At the man’s death without a will, the children may be surprised that the surviving (new) spouse has a 1/3 interest in the deceased man’s separate, personal estate. This can include family heirlooms like guns, jewelry, and home furnishings that are important to the children, but played no significant role in the new spouse’s life. The surviving spouse even gets to enjoy the deceased’s home for the rest of his or her life, even though title was held fully in the deceased’s name. If this weren’t disconcerting enough, consider Texas’s Common Law Marriage Laws. Even if the deceased man never had a ceremonial marriage with a new partner, the partner can still qualify as a surviving spouse if they meet certain criteria. Many probate lawsuits consist of a surviving partner arguing he or she was common law married to the deceased, while the deceased’s children argue he or she was not. Regardless of the situation, the easiest way to avoid these misunderstandings is to have a valid will.
2. Pretermitted Children
Even if an individual does execute a will, subsequent events can still alter how closely that will is followed. The Pretermitted Child situation, for example, specifically addresses what happens when an individual has children after making a will. Basically, the current statutes read that if, after making a will, (1) the person has a child, (2) the new child is not mentioned or provided for in the will, and (3) some of the estate is left to a person other than the new child’s surviving parent, then the afterborn child will get one of two things. If the will does not mention existing children, then the afterborn child gets an intestate share of the estate not left to the afterborn child’s parent. If there was a provision for existing children, then the afterborn child gets a pro rata share roughly equal to what the other children got.
Consider an example. Suppose Bob has two children, Fred and Jill, before divorcing their mother. When Fred and Jill are adults, Bob marries a woman named Diane. Bob then executes a will reading “I give half my estate to my wife Diane, and the remainder to my children, Fred and Jill, in equal shares”. A year later, Diane bares Bob another son, Rick. Bob then dies without ever updating his will. Under the pretermitted child laws, Rick is entitled to the same amount as Fred and Jill. Thus, Diane will still get her half, while the remaining half is split 3 ways between Fred, Jill, and Rick. This result may have been a complete shock to Bob, who assumed that Diane’s ½ share of the estate was more than adequate to support both her and Rick. I have two suggestions for avoiding this problem. First, update your will regularly with an attorney who can identify these potential issues. Second, consider using “class” language, as opposed to specific names. If you state “I leave $10 to each of my children who survives me”, then at lease you know exactly what a given child will get, even if it is unclear how many there will be.
3. Sweetheart Wills
Many couples utilize the “sweetheart” technique in their estate planning. Simple and efficient, this method consists of both partners agreeing that they will leave their estates “To my spouse, but if my spouse should predecease me, then to my children”. Even in a sophisticated estate plan, the sweetheart technique can ensure that the family’s assets are enjoyed by the surviving spouse before reaching their agreed-upon destination. This can often alleviate tension in blended families where both spouses have children of previous relationships. Imagine Mike and Carol Brady, of the 1970’s sitcom The Brady Bunch, wanted to make sure that all the children, boys and girls, received an equal share of their parent’s estates. They could execute sweetheart wills stating “I leave everything to my spouse, but if my spouse should predecease me, then I leave everything to Marcia, Jan, Cindy, Greg, Peter, and Bobby, in equal shares.” In theory, that would ensure that, whoever dies first, neither Mike nor Carol’s biological children are favored over the other’s.
While sweetheart will are a good plan in principle, there is one serious elephant in the room. Texas law is clear that wills are not to be understood as contractual. Imagine if someone came up to you asked for $1.00, promising that in return, they will leave their entire estate to you by will. Even if you signed a contract evidencing that agreement, there is nothing you can do if they leave their stuff to someone else. The same principal is true for sweetheart wills. You can promise to devise your entire estate in a certain way based on the agreement that your spouse will do the same. Just like the man who took your dollar, however, there is nothing binding you spouse to hold up their end of the deal. Imagine, in the Brady Bunch situation, that Mike died first, leaving everything to Carol. There is nothing legally stopping Carol from executing a new will leaving everything to Marcia, Jan, and Cindy only, leaving Greg, Peter, and Bobby out of luck. If you are weary of this situation, I would instead recommend making specific bequests to each individual you would like to gift your estate to. In the alternative, I recommend speaking to a knowledgeable attorney about trust planning.
4. Trust Issues
Trust planning is often seen as a solution to the sweetheart will issue, and it certainly can be in many regards. Instead of hoping your surviving spouse will hold up his or her end of the deal, you can definitively say “I leave my estate to XYZ Trust, for the benefit of my spouse for his or her lifetime, then, upon his or her death, to my children outright”. This language is designed to ensure that the trust’s beneficiary cannot change the ultimate destination of the trust’s assets. While they may not be able to expressly change where the assets go after his or her death, they can still play a heavy hand in what (or how much) is delivered to that ultimate destination. Many such trusts name the surviving spouse as both the trustee and beneficiary, allowing them broad discretion in making disbursements. Even if there is a third party trustee, the structure of the trust can often allow for very liberal disbursements to the beneficiary. The children can always bring a legal challenge against the management of the trust, but such challenges are often unsuccessful and very costly.
Even if blended families appear to get along amicably, it is sometimes nothing more than their love for the testator that holds them together. Once that person dies, the blended family members can grow resentful and stick to their own blood. When that resentment is introduced, it can inspire a sort of “race to the bottom” mentality towards any trust. A second wife may do her best to purposefully exhaust the principal of a trust in order to leave her step-children with as little as possible. Thus, though the testator’s wishes are technically followed, his or her children may still end up walking away with nothing, or close to it. If you are leaning towards trust planning, consider separate trusts for each person you would like to benefit. If you insist on a trust for your spouse with remainder to your children, consider tightening the disbursement provisions. One method is to allow disbursements only from the trust’s income, while leaving the principal alone. Another method is to tie the disbursement to a percentage of the trust’s value, thus inspiring the beneficiary to keep that value high.
No matter what your family situation is, or what concerns you have regarding your estate, the bottom line is that that each situation is different. Even if you already have a valid will, your subsequent actions can impact the validity of that will. The only way to truly maximize the potential of your estate passing pursuant to your wishes is to keep your estate plan current in light of your changing circumstances and evolving legislation. If you are in need of an estate plan, of want to update yours to reflect any changes in your life, I highly suggest consulting a knowledgeable estate planning attorney.