There are a lot of couples in the United States that are not in their first relationship, there are children from prior relationships, and they’re all coming together as a family. Whatever’s going to work for them is going to work for them. But then one of the biggest questions in estate planning that comes up is who would be handling financial decisions for the couple if they have a revocable living trust and are unable to handle things themselves? The “stereotypical family” where it’s mom, dad, their kids and that’s it may still be the majority of families, but not by much. Forty percent of families now have at least one partner with one child from another relationship. When it comes to blended families doing their estate planning, the thought process for making decisions is sometimes different compared to other individuals and couples, but the questions are exactly the same.
First Estate Planning Meeting
When I first meet with my clients, we have what we call an Estate Strategy Session. My clients are given my book Estate Planning Basics to read which covers all of the main ins and outs of estate planning, such as “What is probate?”, “What’s the difference between a Will and a Trust?”, and “What are some of the main documents involved in a complete estate plan?” We do this so that by the time I’m sitting with my clients in the Estate Strategy Session, we’re really going into the client’s goals, the people in their lives, and any specific circumstances that we need to address when developing the overall estate plan. With these concepts already addressed before my clients come in, we can actually accomplish a lot in the first meeting. [I also know that when potential clients refuse to read the book, they are going to be completely confused, not understand most of what I am saying, and end up leaving the office frustrated and unhappy because they didn’t think it was this complicated. However, in all the years I have been requiring Estate Planning Basics be read before we meet, I have only had one person still be confused on these basic issues.]
Blended Family Estate Planning
With blended family estate planning, the entire process and the decisions to be made can seem completely confusing. But then we take things step by step, and we talk things through. In the end, it ends up not being that complicated after all. However, for a few reasons, one thing we can’t do is be satisfied with the clients answering “We’ll discuss it and get back to you.” The first reason why is because I know statistically the discussion doesn’t happen, and four out of five times there is no more progression in the process until a tragedy happens to them or someone close to them, and they restart the process. The second reason is that I have been doing this for more than 27 years, so bouncing ideas off me as the attorney is part of my job.
The Big Four Questions
The first of what I call The Big Four Questions we address is “Who do you trust to make financial decisions for you if you can’t?” The scenario that I’m typically giving is if everything gets put together exactly how you want and your plan is in place, and then say you leave and get into a car accident. Both of you are now in the hospital in a coma for three months. Who’s going to grab the checkbook, pay the bills, move money around, and keep everything afloat so that when you get out of the hospital, you’re not left with things being repossessed, utilities being turned off, and properties in foreclosure? Someone has to keep your life going, and that’s who we are thinking of. At the same time, if you don’t make it out of the hospital, you pass on, who’s the person in charge of making sure that all of your final arrangements are handled and taken care of, all your debts and taxes are paid, and then the money gets to the people it’s supposed to get to and when it’s supposed to get to them. So what are the criteria? The financial agents should be a person they trust whose judgment they trust. They don’t necessarily have to have a job in the financial field, but they should be able to spend money wisely and work well managing an attorney, financial advisor, and accountant.
I then emphasize that we’re looking for three people to serve in succession. The first person, who doesn’t count towards the list of three, is that spouse or partner, but now we need three people after each other. Sometimes people jump to asking if I’m talking about “the trustee,” but I focus on the broad question of who they trust to handle financial matters because it isn’t just the trustee we’re choosing with this question. It’s the Successor Trustee, but it is also the Durable General Power of Attorney. It’s the Executor of the pour-over Will. It’s anything dealing with legal or financial things or personal things for you, but it is not related to healthcare.
In 27 years of counseling clients, no one has ever given me a solid reason to have a different list for successor trustees, financial powers of attorney, executors of the pour-over Will, and the conservator of the estate positions. It is essentially the same job requiring the same skills, but based on 1) whether the assets are in the trust or outside the trust, 2) during incapacity or after death, or 3) with court involvement or not. And the fact is that it actually makes things more complicated if different people are serving in a financial capacity, either trying to do the same job with different assets or at the “handoff” when someone passes on.
One strong emphasis I also wrote into Estate Planning Basics and discuss in the Estate Strategy Session is that there really shouldn’t be any “Co-Anything.” This is probably one of our top five strongest recommendations, and it’s pretty much across the board. Don’t put two people in charge of the same financial actions, or making health care decisions, or anything for whatever reason, because it only leads to conflict.
One reason most people look to co-Trustees is based on a big misconception: “This could be a big job with a lot of work, so we can spread the work around by having more than one person.” Unfortunately, the trend with a lot of banks and financial institutions is they’re not going to care even if the trust or power of attorney allows only one person to make changes or take action, they are going to insist that all of the co-trustees/co-powers of attorney sign everything (except between spouses or partners on a joint trust.) So now you’ve actually doubled or even tripled the work.
A second reason blended family couples may want co-Trustees or co-agents is to have “one from each side of the family” to create some kind of “balance.” The fact is this has a tendency to elevate the potential for conflicts during a time of crisis. Imagine having each of your mothers jointly involved in financial decisions while you the couple are in comas in the hospital for three months. While your particular set of parents may be better than most, leaving these potential conflicts in place is not wise. This is why we highly recommend one person serve in a position at a time.
When it comes to picking financial agents with a blended family, both of you should choose people who you mutually agree on. One thing I have noticed when working with my clients is that while they may not immediately agree on who to choose, they can pretty readily agree on who to exclude. There are close friends and relatives who they may like but would not put in charge of anything financial. Coming to a consensus on who to pick often requires some compromises, more often with the second or third choice.
Another potential situation that could impact financial agent choices is if the children are still young and anything were to happen, then the trustee may have to work with the ex-spouse or partner. If there is a lot of animosity from family members because of the breakup, then it may be easier to simply name close friends rather than immediate family members such as parents or siblings.
Finally, there may be no possibility of compromise on the financial agent’s question. When this occurs, the couple is almost always also keeping most of their assets separate with only a few joint accounts and possibly the house. In this case, it may be better to simply do separate trusts, and still keep the spouses as each other’s first successor trustee, but then they can choose their own list of financial agents.