Blended families present some interesting estate planning questions

Video Transcript:

Hello everyone. This is Robert Mansour, and I wanted to make a brief video today about blended families. More and more clients are coming to me where the husband and the wife have children but sometimes the husband has his own children from a previous relationship, and the wife has her own children from a previous relationship. So this gets a little bit complicated, but let's talk about some of the possible solutions for a family like this.

One solution is to create a living trust that has all of the assets in it. We can call it the "Smith Family Trust." So the Smith Family Trust. There's the husband and there's the wife. Let's say the husband has three kids from a previous relationship and let's say the wife has two kids from a previous relationship. Well, this, as you can imagine, could be a problem. So let's say the husband passes away first. All right? Let's say the husband passes away first and everything is with the wife. Now these children down here are waiting to see what happens. Aren't they? Well what if the wife decides to change the Smith Family Trust? What if she says, "You know what? I don't really like these kids," or somebody enters her life like a new husband, maybe, or a boyfriend or whatever, and they come and they get her ear. Frankly, it could be these children who get her ear, and she decides, "You know what? I want to change the Smith Family Trust. I don't want these children to get anything anymore."

Well that's entirely possible. So what can we do? Well, I sit down with a husband and a wife and I talk about this and I tell them, "Look. Either you're okay with that," and in some cases they are. A lot of times the husband and wife say, "You know what? If my spouse wants to change everything, then so be it. That's okay with me," but then I have some clients who say, "Oh, no. That doesn't sound okay with me." So what are some other options? Well, what we can do is we can say when the first spouse dies, the surviving spouse, the wife in this particular scenario, cannot make any changes to the trust. No changes at that point. So even if somebody tried to pressure her or tell her to do something, she cannot legally make any changes to this trust. It's going to split the way she and her husband originally designed.

Another idea that we can do is the trust can split into two parts. So let's see how that one works. So here's the original Smith family trust. There's the husband and there's the wife. Let's say in this particular scenario the wife dies. What happens is we split the trust into two parts. We put 50 percent on this side and 50 percent on this side. Now it could be different percentages, but this is essentially how it works. This side is called the "A" side and this side is called the "B" side. Now sometimes we call this the survivor's trust because of the surviving spouse and sometimes we call this the decedent's trust. Either way, it's an A, B split. So we take, let's say there's $100 in the trust. We take $50 and put them here and $50 and put them here. So somebody might say, "Well, how does this help?" Here's how it helps. This trust over here, the "B" trust, you can't change. You can't make any modifications to it. It's going to distribute the way the husband and the wife originally designed it. The survivor's trust on the "A" side, the surviving spouse can do whatever he or she wants with that. So this is one solution to that problem.

Also, another way we can do it is we can say that another person will serve as a co-trustee with the surviving spouse. Like one of the kids from the decedent's side of the family maybe can be a co-trustee and make sure that the wife or the husband honor the original agreement. As you can see, things can get a little bit dicey when you have a blended marriage.

That's why it's a good idea to visit with an estate planning attorney, sit down, and map out a plan. Remember, it's called estate planning. There's a reason for that. Having a plan is better than having no plan at all. All the children from both sides of the marriage will certainly appreciate the time that you took to protect everybody involved. Please feel free to give me a call and set up an appointment if you'd like to talk about your estate plan. Thank you very much.