Blended Families: How to Protect Your Spouse and Your Children

Remarriage can bring two families together—but it can also make estate planning more complicated.

Imagine that both spouses have grown children and grandchildren from earlier relationships. They own a house together. When the first spouse dies, the surviving spouse sells the house and uses the money for living expenses. Years later, the surviving spouse dies.

Who receives the money that remains?

Without the right plan, the children of the spouse who died first could receive nothing.

The Problem With Simply Leaving Everything to Your Spouse

Many married couples have wills that say:

“When I die, everything goes to my spouse. When my spouse dies, everything goes to our children.”

That may work when both spouses have the same children. It can cause serious problems in a blended family.

Once property or money is left directly to the surviving spouse, it generally belongs to that spouse. The surviving spouse may be able to:

• Spend all the money
• Give money to family members
• Change beneficiaries
• Write a new will
• Remarry and leave property to the new spouse
• Leave everything to their own children

Even when everyone has good intentions today, circumstances can change. The surviving spouse may live for many years, need expensive care or become influenced by another person.

A verbal promise to “take care of all the children” is not enough.

A Simple Example

Suppose Robert and Susan are remarried.

Robert has two children. Susan also has two children. Together, they own a home worth $500,000 with no mortgage.

Robert dies first. Susan receives the house and later sells it for $500,000. She uses part of the money for housing, medical care and everyday expenses.

When Susan dies, $250,000 remains.

If Susan owned the money outright, her will or beneficiary forms could leave the entire $250,000 to her children. Robert’s children may receive nothing—even though part of that money came from Robert’s share of the house.

This is the situation blended couples need to plan for.

Step 1: Decide What Each Spouse Wants to Protect

Before meeting with an estate-planning attorney, discuss these questions:

• Should the surviving spouse be allowed to remain in the house?
• May the house be sold after the first spouse dies?
• If it is sold, how may the money be used?
• Should the surviving spouse receive income from the money?
• May the surviving spouse use the principal for health care and living expenses?
• What should happen to any money remaining after the second spouse dies?
• Should each spouse’s share eventually pass to that spouse’s children?
• Should grandchildren inherit if one of the children dies first?

These decisions should be written down clearly.

Step 2: Consider a Trust Instead of an Outright Gift

One common option is a properly prepared trust.

When the first spouse dies, that spouse’s protected share of the house or other property can pass into the trust instead of becoming the surviving spouse’s unrestricted property.

The trust could allow the surviving spouse to:

• Continue living in the house
• Sell the house when necessary
• Use the sale proceeds to purchase another home
• Receive income from invested funds
• Use a reasonable amount for health care, housing and support

After the surviving spouse dies, anything remaining in the trust can pass to the first spouse’s children or grandchildren.

For example, Robert’s trust might provide for Susan during her lifetime while preserving the remaining balance for Robert’s children. Susan could create a similar plan for her share.

A trustee manages the trust and must follow its written instructions. Trustees have legal responsibilities to manage trust property carefully, keep records and act for the beneficiaries identified in the trust. The Consumer Financial Protection Bureau explains these fiduciary duties in its trustee guide.

The correct type of trust depends on the family, the property, state law and possible tax consequences. It should be prepared by a qualified estate-planning attorney.

Step 3: Make Sure the House Can Be Sold

The plan should address what happens to the house after either spouse dies.

It should answer:

• Who has authority to sell the house?
• Does the surviving spouse need anyone else’s permission?
• Who chooses the real estate agent and accepts an offer?
• Who pays the mortgage, taxes, insurance and repairs before the sale?
• Where are the proceeds deposited?
• How much belongs to the surviving spouse?
• How much must remain protected in the trust?

The documents should give the executor or trustee enough authority to complete the sale without unnecessary disputes or delays.

If the surviving spouse needs the money to live, the trust should provide reasonable access while still preserving the first spouse’s intended inheritance whenever possible.

Step 4: Review the Deed

A will does not always control what happens to a house.

The result may depend on exactly how the names appear on the deed and whether the ownership includes a right of survivorship. State laws differ, so the couple should have an attorney review the current deed.

Do not add an adult child to the deed simply as a do-it-yourself solution. That can create ownership disputes and may expose the property to the child’s creditors, divorce, lawsuits or financial problems.

The deed, wills and trusts must work together.

Step 5: Check Every Beneficiary Form

Some assets pass according to beneficiary forms—not according to a will.

Review the beneficiaries on:

• Life insurance policies
• Retirement accounts
• IRAs
• Annuities
• Investment accounts
• Payable-on-death bank accounts
• Transfer-on-death accounts

A forgotten beneficiary form can defeat an otherwise careful estate plan. For example, naming the surviving spouse as the sole beneficiary may give that spouse complete control of the account, even if the will says something different.

Do not assume the will overrides these forms.

Step 6: Prepare the Essential Documents

Each spouse should generally discuss the following with an attorney:

1. A current will
   Names the executor and explains who receives property controlled by the will.
2. A revocable living trust, when appropriate
   Can manage designated property during life and provide instructions after death.
3. A durable financial power of attorney
   Names someone to handle financial matters if a spouse becomes unable to do so. A durable financial power of attorney remains effective during incapacity, although exact rules vary by state. The CFPB provides additional guidance on financial powers of attorney.
4. A health care power of attorney
   Names the person authorized to make medical decisions.
5. An advance health care directive or living will
   Records wishes concerning medical and end-of-life care.
6. Proper deeds and property titles
   Ensures the house and other property will pass as intended.
7. Updated beneficiary designations
   Coordinates life insurance, retirement accounts and financial accounts with the overall plan.
8. A personal property plan
   Explains who should receive sentimental items, jewelry, photographs, family records and heirlooms.

Step 7: Choose the Right People

Blended families must be especially careful when selecting an executor, trustee and financial agent.

Naming one spouse’s child to control everything may make the other side of the family uncomfortable. In some families, the best choice may be:

• A trustworthy neutral relative
• One representative from each side of the family
• A professional trustee
• A trusted attorney or financial institution

The person selected should be organized, fair and capable of keeping detailed records.

Step 8: Keep a Family Information File

Create one secure file containing:

• Wills and trusts
• Deeds
• Marriage certificates
• Divorce agreements
• Prenuptial or postnuptial agreements
• Insurance policies
• Account information
• Beneficiary confirmations
• Loan and mortgage records
• Tax returns
• Attorney and financial-advisor contact information
• Funeral or burial wishes
• Password and digital-account instructions
• A list of important personal property

Tell the appropriate family members where the file is located. Do not place the only copy of essential documents in a location no one can access after a death.

Step 9: Discuss the Plan With the Children

Parents do not need to disclose every dollar, but secrecy often creates suspicion.

A simple family conversation can explain:

• The surviving spouse will be financially protected.
• Each spouse wants to preserve something for their own children.
• The house may need to be sold.
• A trustee will manage protected funds.
• The trustee must follow the written plan.
• The arrangement is meant to prevent confusion and conflict.

This conversation can be uncomfortable, but it is usually easier than asking grieving family members to resolve unanswered questions later.

Step 10: Review the Plan Regularly

Review the entire plan every few years and after a major event, including:

• Selling or purchasing a home
• A serious illness
• A child’s death
• The birth of a grandchild
• A divorce or remarriage
• A major change in finances
• Moving to another state
• A change in family relationships

A plan that worked ten years ago may no longer protect the right people today.

The Goal: Support the Spouse Without Forgetting the Children

A good blended-family estate plan does not force a choice between the surviving spouse and the children.

It can provide the surviving spouse with a home, income and financial security while protecting whatever remains for the first spouse’s children or grandchildren.

The most important steps are simple:

• Put the agreement in writing.
• Coordinate the wills, trusts, deed and beneficiary forms.
• Clearly address the possible sale of the house.
• Choose trustworthy people to manage the plan.
• Have the documents prepared or reviewed by an estate-planning attorney licensed in your state.

The goal is not only to distribute property. It is to prevent confusion, protect the surviving spouse and keep promises to both sides of the family.

This article provides general educational information and is not legal or tax advice. Estate, probate, homestead, elective-share and trust laws vary by state. Couples should consult a qualified estate-planning attorney and tax professional about their circumstances.