Category Archives: Estate Planning

Estate Planning Issues for Blended Families and Second Marriages

Blended families and second marriages create a number of issues in the context of estate planning.  Difficult decisions must be made and competing interests must be prioritized.  Some of the common concerns include the following:

  1. Providing for the new spouse.
  2. Providing for children from a prior marriage.
  3. Providing for children born during the new marriage.
  4. Protecting assets from prior spouses.
  5. Whether and to what extent to provide for a new spouse’s children from a prior marriage.

What Happens to Your Assets After You Die

The key to estate planning for blended family is understanding two things: (1) the natural or default rules for distribution of your assets after death; and (2) your wishes for how those assets should be distributed.  Then it merely becomes a matter of prioritizing those interests, making tough decisions, and putting together a plan that accomplishes your objectives.  This plan may use a variety of tools such as a last will and testament, a trust or trusts, and marital property agreement.

For example, do you want to distribute all of your assets outright to your new spouse?  If so, do you know that your new spouse then has complete control over how those assets are distributed at his or her death?  What if your new spouse chooses to cut your children out of his or her will?

Do you want to provide for your children from a prior marriage?  Should they have to wait until your new spouses death or should they receive some sort of distribution immediately?  If they wait per the terms of a trust, that can often lead to bad feelings between your children and your new spouse – especially if the children must wait a long time to receive what they see as their rightful inheritance.

What about children born during your new marriage?  Should they receive some priority in the inheritance?  Should they receive the same percentage as children from your prior marriage?

What about your new spouse’s children from a prior marriage?  Should they receive any of your assets you acquired prior to marrying their parent?

How much control should your prior spouse have over your assets if your children are minors?  If you pass away leaving your assets to minor children, your prior spouse, as their parent, is a natural guardian of their property as well.  Should that spouse be able to use and dispose of your assets (for only the children’s benefit of course!) during their years of minority?  Perhaps those assets you left to your children would be better protected by an independent trustee?

Wills versus Trusts as Estate Planning Tools for Blended Families

A Last Will and Testament is the most basic estate planning tool and even if you choose to plan through some type of trust, you should always have a will in place to take care of any forgotten assets.  This is commonly referred to as a pour over will in that it leaves any remaining assets to the trust established as your main planning vehicle.

The problem with relying on a will as the primary planning tool in blended family estate planning is that once an asset is distributed under your will, you lose all control over how that asset is used or distributed upon the beneficiary’s passing.

For example, if you leave all of your assets to your new spouse, then you have no control over how your new spouse chooses to distribute those assets via his or her will.  While you may be aware of the contents your new spouse’s will now, your new spouse can always change their will after you pass.  This is one of the most common ways in which children from a prior marriage get left out.

Those assets you dispose of with a will are also subject to the beneficiary’s complete control – and therefore – subject to claims by their creditors or gifts to people you may not want to receive the benefit of all your hard work.

For example, if leave your assets to a spouse who remarries – then their new spouse now has access to all of your assets and hard work.  It would be a shame for those assets to go to waste and not be available to provide for your children.

That is why most blended family estate planning will involve the use of trusts.  A trust allows you to plan for who should benefit from your assets through multiple generations.

For example, your trust might provide that your new spouse gets the benefit of any income from your assets during his or her lifetime, but upon her death that right passes to your children.  In this case, your children might be children from a prior marriage or children from your new marriage.

A trust also allows you to protect your assets from creditors of your spouse or children, and also from greedy deadbeat spouses if your spouse remarries after your passing or your children choose their spouse poorly.

Trusts also allow some flexibility – for example – your children or spouse may hold a special power of appointment allowing them to designate who should receive future distributions from the trust when they pass.  However, you can place restrictions on that power of appointment such as limiting the potential appointees to individuals in your bloodline or within another defined group.

Beneficiary and POD Designations on Retirement Accounts and Life Insurance

Regardless of whether you conduct your estate plan through a will or a trust, you must ensure that your beneficiary and POD designations on any retirement accounts and life insurance plans are consistent with your estate plan.

If your primary planning vehicle is a trust, but your primary assets are in retirement accounts or life insurance policies that name an individual beneficiary, then your well thought out plan will be wasted.

Beneficiary designations can also be an important tool in estate planning for a blended family by providing opportunities to benefit different interests at the same time.

When assets are tied up in a trust for a new spouse’s benefit during his or her lifetime, the children from a prior marriage who might expect to receive the benefit of those assets down the line can develop ill will toward the surviving spouse.  This may lead to litigation between the surviving spouse and children over distributions made to the surviving spouse.

Using life insurance or retirement account distributions to provide some immediate benefit to children from a prior marriage can help avoid these complications and provide some immediate use of your estate by everyone with an interest in it.  This can help avoid conflict between your family members interested in your estate.  But these designations should be well thought out and consistent with your overall estate plan.

Planning for a Second Marriage with Pre and Post Marital Agreements

Pre-marital agreements are also a commonly used tool in estate planning for blended families.  Texas is a community property state and there is a presumption that all assets are community property unless you (or your executor) can establish that the assets as separate property acquired prior to marriage, by gift, devise, or descent.  Income from separate property is also community property.

But property agreements between spouses can be used to change these rules including characterizing property as community or separate as well as characterizing future income from that property.  While pre-marital agreements are the most common type of marital property agreement, in Texas marital property agreements may be entered into during marriage.

Pre and post marital agreements are often an important tool to balance the interests between new spouses, children from prior marriages, and children from a new marriage.  This is because only those assets that are your separate property or your share of community property are subject to your estate plan.

You cannot control or dispose of your spouse’s separate property nor their interest in community property, and likewise, your new spouse cannot control or dispose of your separate property or your interest in community property.

This makes pre and post-marital agreements important in clearly defining which assets will be available to each set of beneficiaries under their estate plan.  This also helps avoid nasty disputes that often arise among blended family members by allowing the blended family spouses to clearly define which assets are subject to disposition under each of their individual estate plans.

If you are about to remarry, or are already in a blended family marriage, and would like to schedule a consultation to discuss putting together an estate plan, then please visit my contact page and schedule a free consultation today.

Estate Planning 101

Most people hear the term “estate planning” and either don’t know what it involves or don’t fully understand what an estate plan accomplishes.  This article is an Estate Planning 101 to help explain what estate planning is all about, including what an estate is, the goals of estate planning, what an estate plan does, and what documents you might expect to see in an estate plan.

What is Estate Planning?

Estate planning is the process of thinking about and addressing your wishes with regard to two events: your unexpected disability during life as well as your testamentary plans for the disposition of your estate after your death.

What is an Estate?

The short answer is that an estate consists of every piece of property you own.

Examples of assets commonly found in an estate includes your house, any other real estate you may own, your cars, your personal effects such as jewelry and clothes.  It also includes your bank accounts, brokerage accounts, IRAs, 401k’s, other retirement accounts, life insurance, and your business interests.

One asset class often overlooked are your digital assets.  For example, Apple ID’s , Facebook accounts, as well as files and documents stored online are all part of your estate.

In probate, after you pass away, your estate may have liabilities in the form of unpaid debts and may have claims against third parties that arose during or at the end of your life (for example, an asbestos, medical malpractice, or wrongful death claim).

What are the Goals of Estate Planning?

Every person’s estate planning goals differ because everyone’s life is different.  Your estate plan will develop based on your planning goals that are specific to your life, your family, your assets, and your wishes.

That being said, below are a list of some of the common goals clients have when constructing their estate plan:

  • transferring assets at the death to the beneficiaries they wish to receive them;
  • planning for incapacity or disability;
  • providing instructions for their end-of-life care wishes;
  • charitable giving;
  • protecting assets from creditors; and
  • protecting assets from their beneficiaries’ creditors.

What Does an Estate Plan Do?

A properly constructed estate plan will usually accomplish the following objectives:

  • identify the individual recipients of your assets after your death and allocate your assets to them according to your wishes;
  • make sure that the transfer of your assets is accomplished as efficiently as possible;
  • minimize the costs imposed on your estate through taxes and the costs of probate;
  • make sure your non-probate asset dispositions are consistent with your probate asset dispositions;
  • make your end-of-life medical care wishes known;
  • address who will make medical decisions for you in the event you become incapacitated or disabled and are unable to make those decisions yourself;
  • address who will manage your assets and pay your bills in the event you become incapacitated or disabled;
  • provide for the designation of whom you wish and whom you do not wish to serve as your guardian should the need arise; and
  • set forth detailed instructions for how you wish your remains to be handled, whether by cremation or funeral.

Other objectives an estate plan might accomplish include the following:

  • planning for the care of minor children in the event both parents pass away;
  • planning for the care of a child with special needs; and
  • planning for the care of a family pet;

What Type of Documents Should You Expect to See in Your Estate Plan?

Basic estate plans will include the following documents:

  • a last will and testament;
  • an advanced directive (also known as a living will);
  • a power of attorney;
  • a medical power of attorney;
  • a designation of guardian; and
  • instructions on disposition of remains.

More complex estates might also include additional documents such as inter vivos or testamentary trusts as well as business organization documents.

You can read more about each of these documents and what they do by visiting this link:  Key Estate Planning Documents.

If you would like to contact my firm to schedule a consultation to discuss your estate plan, then please visit the firm’s contact page by clicking here.

An Example of Why You Should Have An Attorney Draft Your Will

An Example of Why You Should Have An Attorney Draft Your Will

Today’s example of DIY will language that cost a lot of money comes from the late Ms. Vada Wallace Allen. The issue surrounds a 316 acre tract of land the Ms. Allen conveyed to her son Bobby in some form.

The provision in her will that caused the problems reads as follows:

NOW BOBBY I leave the rest to you, everything, certificates of deposit, land, cattle and machinery, Understand the land is not to be sold but passed on down to your children, ANNETTE KNOPF, ALLISON KILWAY, AND STANLEY GRAY.  TAKE CARE OF IT AND TRY TO BE HAPPY.

Seems simple enough, right? A lot of people might draft that very type of provision in their will and think nothing of it.

What do you think it means?  Who ultimately has the right to own the land in fee simple and sell the land if they so please?

Bobby thought this language means that the 316 acre tract was devised to him in fee simple and the rest of the language was merely an expression of Ms. Allen’s wishes that he pass it on down to his children.  Alternatively, Bobby thought that the rest of the language constituted an unenforceable disabling restraint.

Bobby’s children thought the language meant that Bobby only had a life estate in the land and that upon his passing, title to the land would pass to them.  Under this interpretation, Bobby did not have the ability to sell the land.

What That Language Actually Means

The trial court said the provision means that Bobby owns the land outright and that he can dispose of it as he wishes.  That is exactly what Bobby did as he sold the land in 2014.  This is the transaction that caused Bobby’s children to sue him as well as the purchasers.

Bobby’s children appealed the trial court’s decision but the Court of Appeals agreed with the trial court.

Then, on March 23, 2018, the Supreme Court reversed those decisions.

The Supreme Court of Texas said no, this language did not convey the land to Bobby in fee simple.  Rather, this language granted Bobby a life estate to use and enjoy the property during the term of his life, but upon his death the land passes to his children.

Bobby’s children were right.  Bobby did not have the right to sell the land.

Why It Cost So Much Money

Ms. Allen passed away on June 8, 1993, and her will was admitted to probate on November 9, 1993.  That was 25 years ago.

Bobby conveyed the land in April of 2014.

And in November of 2014, his children filed suit to contest the conveyance.  They had a trial in Robertson County.  Then they appealed the trial court decision to the Court of Appeals.

Then they appealed the Court of Appeals decision to the Supreme Court of Texas.

The Supreme Court’s decision came down almost 4 years after the attempted sale of the land and 25 years after Ms. Allen passed away.

That is a lot of attorneys fees – for each party to the dispute.  And I bet being on opposite sides of a lawsuit did not do much to help the family dynamics between Bobby and his children.

Had Ms. Allen had an attorney draft her will and include appropriate language documenting her intent to convey a life estate to Bobby with the remainder to his children, then the costs and conflict could have been avoided.

Key Estate Planning Documents in Texas

There are numerous documents used when putting together an estate plan.  Each plan is different and focused on the individual client’s needs so one client may have documents in his or her estate plan that are not necessary to address another client’s estate planning objectives.  However, certain documents are common to most estate plans. It… Continue Reading

Basic Estate Planning Issues for New Parents

The feeling of being a new parent is exhilarating, a little scary, and often very tiring – I know, I did it twice.  I still remember walking out of the hospital when my son was born thinking, “That’s it? They really just let me walk out the door and go home with him?”  Along with… Continue Reading