The Tools & Techniques of Estate Planning for Modern Families

L. Paul Hood , Stephan R. Leimberg

• Publisher: The National Underwriter Company
• Year: 2014
• ISBN:
  9781939829153
• Topic: Business
• Subtopic: Insurance
• Index: Business

The Tools & Techniques of Estate Planning for Modern Families is simply the only resource that focuses exclusively on handling the issues associated with estate planning for blended, step, and same-sex families. This groundbreaking resource covers these blended-family scenarios: » Brady Bunch » May/December » Empty Nesters » Eat, Drink, and Remarry Written by expert author L. Paul Hood, currently Director of Planned Giving at The University of Toledo Foundation, and edited by Stephan R. Leimberg, only The Tools & Techniques of Estate Planning for Modern Families will immediately enable you to: » Fully plan for unmarried partners » Take into consideration all estate-planning issues connected with blended families » Manage the effects of the Supreme Court's ruling regarding the Defense of Marriage Act » Help your clients preserve their assets through changing circumstances » Quickly fill in the huge gaps in traditional estate-planning references » Steer far clear of major malpractice pitfalls

MODERN FAMILIES

CHAPTER 1

INTRODUCTION

The modern family looks quite different today from the so-called “traditional” family of sit-com television lore, when shows like The Adventures of Ozzie & Harriet and Leave it to Beaver reinforced perhaps a false notion of what a so-called “regular family” looked like and how they acted and interacted. Changes in laws include wide spread enactment of so-called “no fault” divorces as well as reductions in waiting periods for divorces. These changes—combined with changes in social mores that reduced the stigma of unmarried couples co-habiting as well as couples remarrying after being divorced—have transformed the modern family, probably forever (assuming the regular family was ever like those sit-com families¹).

While the bulk of this book will address the thorny thicket of estate planning for blended families, we will also address options and issues for the millions of unmarried partners living together who are not legally related to one another by state sanctioned marriage. We will point out the differences in the rules for legally related versus legally unrelated partners. In particular, see Chapter 42.

WHAT IS THE DEFINITION OF THE TERM “BLENDED FAMILY”?²

Let’s begin by defining the term “blended family.” A blended family is one in which two people are partners and at least one of the partners has one or more children who are not the children (by birth or adoption) of the other partner. Also known as “stepfamilies,” we prefer the term blended families even though some criticize the use of that term as problematic and not very descriptive of many families in this category. In fact, the National Stepfamily Resource Center went so far as to describe the term blended family as a “catchy media phrase that does not describe either a family relationship or what happens when at least one partner to a marriage brings children from a prior relationship (marriage ended by death or divorce or an unwed parent).”³

We certainly realize that a significant percentage of so-called blended families hardly fits within the definition of the word “blended.” Therefore, perhaps our choice of terms is aspirational for these families or wishful thinking on our part: perhaps for some, the term “mixmaster” family would be more appropriate). We will discuss planning around blended family difficulties either during lifetime or at and after death, when relations may not be so cordial, which is why advanced awareness of issues is so critical for enabling our clients to plan around them.

EXPLANATION

Note that throughout this book, we’ll often be referring to the couple as partners rather than spouses. Likewise, we will sometimes refer to a relationship as a union rather than a marriage. The simple fact is that, today, many people are opting—for a variety of reasons—to not become legally married; yet they are living together as a couple. In fact, according to a 2010 study by the Pew Research Center,⁴ married households barely comprise a majority (52 percent) of households in the United States today, down from 72 percent in 1960. In fact, that same study indicated that 44 percent of all adults (and over half of people ages 30-49) have cohabited at some point in their lives. Some people cannot legally marry. Many who can choose to marry decide, for whatever reason not to. Yet, they live together as a couple and may even have children from that relationship or other relationships. In our judgment, it would have been an oversight to have left those people out of this book, since it really is for these people that we write this book.

It is of the utmost importance that the client define the term “family” in their particular situation, whether it is blood/adoption-based or affinity-based. In Family: The Compact Among Nations, Jay Hughes defines family to include people “who by either genetic lineage or bonds of affinity consider themselves related to each other” [emphasis added].⁵ In blended families, it has been our experience that, while not a majority, a significant and increasing number of clients include stepchildren and even step-grandchildren within their family, considering them for both legacies and fiduciary positions. However, the obverse also is true: In many (not so) blended families, the idea of a stepchild somehow inheriting from them or even having anything to do at all with their estates is repugnant to some clients. Therefore, it is important to have that specific conversation with them and not just assume that step relatives should have no role in their estate plans.

BLENDED FAMILY STATISTICS

More and more, blended families are becoming the norm. In fact, as of 2010, according to United States census data, there are now more blended families than any other type of family. Here are some other eye-opening statistics about blended families:

• 50 percent of the children in the U.S. are in one or more blended families

• 1,300 new blended families are formed every day

• At least one-third of the children living in the U.S. are expected to live in a blended family before the age of 18

• 38 percent of marriages in the United States are remarriages for one or both partners

• 42 percent report having at least one step relative

• 25 percent report having been married two or more times by age 50

• Over 50 percent of the divorces among blended family couples are caused by the children of either or of both partners

As significantly large as these statistics are, the National Stepfamily Resource Center asserts that the statistics understate the number of step or blended families.⁶

EXAMPLES OF BLENDED FAMILIES

Blended families come in all shapes, sizes and configurations. Perhaps the best known blended family is the fictitious Brady Bunch of television fame. However, blended families can and do look quite different from the Brady Bunch. Consider the following six different examples, all of which fall within our definition of a blended family:

Brady Bunch: Mike (age 40) a widower who has three sons, marries Carol (age 38) a widow who has three daughters. They have no joint children. The children are all minors who live together. Mike owns his own business, and Carol has a substantial separate estate that she inherited from her late first husband.

May/December: Franklin (age 70) a wealthy widower who has three grown children in their 40’s, marries Laurie, (age 26) an impecunious dance instructor who has a daughter (age 7) whom she is raising alone. They would like to have a child of their own. Franklin has done a substantial amount of lifetime estate planning and has already passed significant wealth on to his children and grandchildren.

Empty Nesters: Michael, (age 72) is a widower with three grown children, a pension and benefactor of his late wife’s life insurance, marries Sophia (age 72) who is long divorced with three grown children and who has no financial experience, has no savings or retirement other than social security, and her only asset is her home. The couple plans to live in Sophia’s home, but Michael has a lot more wealth, on which Sophia has become somewhat dependent.

Eat, Drink and Remarry: John (age 63) marries Judith (age 35) as his fourth wife. John has a son (age 37). John has some expensive alimony obligations to his first wife. Judith, who has been divorced twice, has two sons ages 11 and 8, each with a different father with whom she splits custody. Judith has substantially more wealth than John, while John has far greater income earning potential as a professional. John and Judith have a separate property prenuptial agreement.

Non-Traditional Blended Family: Marie (age 46) and Angela (age 37) have become a couple. Marie adopted a child, who is now age 18, as a single parent. Angela, who has been divorced once, has a child (age 10) whom she is raising alone with only meager, sporadic child support. Marie stands to inherit money from her parents, but that may be in doubt due to her recent lifestyle choices. Angela has the greater income, and she owns the home that they live in, although both are contributing to payment of the mortgage.

Yours, Mine and Ours: Bob (age 43) and divorced once, married Bridgett (age 41), who also divorced once. Each has a child under 18 from a prior marriage, over whom each has joint custody. Bob and Bridgett also have two children together (ages 7 and 3). Bridgett is staying at home to raise the young children, while Bob is working to support the family. Bob provides child support to his son’s mother, and Bridgett receives child support to a lesser degree for her daughter from her first husband.

These are all examples of what blended families can look like. These examples are not intended to be exhaustive either. There are many other examples of blended families, each of which have valid, vital and unique concerns when it comes to how to make sure the needs of loved ones are addressed in life and after death. Even a quick consideration of each example demonstrates the rich diversity of blended families. In some of the examples, the couples have minor children living with them. Others do not. One couple has joint minor children, while also housing part-time their respective separate children. One couple wants to have a child together.

In a few of the examples, the couple has children of a prior union living part-time in their home, while other example couples do not have to deal with part-time resident children. In two of the examples, the new partner is younger than the children of the parent partner. Estate planners who have a narrow focus of what defines a family could miss the various ways that individuals in blended families consider all the people who presently are in their lives as part of their family, and these concerns need to be taken into account in the estate planning process.

Each of these examples presents very different estate planning issues. In some of the examples, one partner makes substantially more income than the other partner. In other examples, one partner has substantially more wealth than the other partner. If the wealthier partner dies first, should his or her entire estate be held for the benefit of the surviving partner? In some situations, the answer is “perhaps,” while in others, the answer may be “no.”

This situation becomes even more complicated when taking into consideration the disparate ages of adult children from a prior union and minor children from the current union, all of whom are all concerned about how the estate will pan out for them—whether they say so or not. In other examples, one partner has substantially greater earn...