The Thirty-A Review November 2020

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Blended Family Basics b y K i m b e r l y Wa t s o n S e w e l l a n d F r a n k Wa t s o n

“unfitness” by a court order will keep your ex-spouse from parenting your minor children, your estate plan can provide that someone of your own choosing will manage any inheritance for your children. Without careful planning, your ex-spouse could actually inherit from you through the estates of your children should they die while single and childless. Problem 2: Unless you have “cleaned up” the beneficiary designations to your ERISA retirement plan (e.g., 401k), then your ex-spouse will inherit the proceeds if he or she is still the designated beneficiary. That was the ruling by the U.S. Supreme Court in Egelhoff v. Egelhoff , 532 US 141 (2001). Consequently, one of the first steps post-divorce should be to update the beneficiaries of your Likely you exchanged some solemn vows on your wedding day. For example, you likely promised to take care of your new spouse physically and maybe even financially. Even if you did not exchange such traditional vows, the laws of your state exchanged them for you... absent a premarital agreement…defining your mutual rights and responsibilities as married individuals. So, how do you honor your new responsibilities to your new spouse, if you pre-decease that spouse? You do so through very careful estate planning, including careful attention to detail regarding asset titles and beneficiary designations. Many families, blended and original, have been torn apart when the estate planning legal documents were not coordinated with the asset titles and beneficiary designations. For example, your estate plan may provide for your children, but your assets may be arranged to pass directly to your new spouse. Alternatively, your new spouse could be cut out of the inheritance to a degree you did not intend. Surely you do not want your inheritance to be consumed in a courtroom through legal fees as your new life insurance and retirement plans. Provide for Your New Spouse After a divorce or the death of a parent, children can become bitter, better, or just adrift. When a new stepparent enters the picture, let alone stepsiblings, things can get especially interesting. Therefore, it is only prudent to make flexible plans now that will accomplish your objectives. Accordingly, arrange for the inheritance to be protected both for and from your own children as needed. Otherwise your lifetime of work and thrift can disappear spouse and your own children fight it out. Provide for Your Own Children

through the potential squandering, divorces, lawsuits, or bankruptcies of your children. Protect the Inheritance Did you know you can make the inheritance you leave to your new spouse and to your own children heir tight? Outright distributions simply transfer the inheri- tance directly to a beneficiary and provide absolutely no protection. Staggered distributions are the same as out- right distributions in terms of no protection when two or more transfers are made directly to a beneficiary upon reaching certain ages. In contrast, consider creating a long-term discretionary trust to last throughout the lifetime of a beneficiary, providing income and with principal, as needed. All along the way, whether a beneficiary is your new spouse or your own children, the inheritance is fully protected for and from them. The key to a successful discretionary trust is selecting an appropriate trustee with broad discretionary authority. In addition, the non-fiduciary position of “trust protector” can be created to appoint and even remove a trustee if needed to fulfill your objectives. Think of the trust protector as the “guardian angel” over the trust. Avoiding Unintended Consequences There are a lot of moving parts when it comes to proper estate planning. There is no one-size-fits-all strategy to meet the legal challenges identified in this article, but here is a simple formula to consider: Qualified Terminable Interest Property (QTIP) Trust = Life Insurance = Blended Family Harmony. Upon your death, this formula can provide an inheritance for the life of your new spouse, insurance proceeds for your own children, and ensure that the remainder of the inheritance for your new spouse will then pass to your own children when your new spouse dies. Review Your Estate Plan Failing to review your estate plan can result in a train wreck of court processes for your family and loved ones. Be sure to engage appropriate legal counsel before you pursue any financial or legal strategy to overcome blended family challenges.

Kimberly Watson Sewell and Frank Watson

A re you a member of a blended family, either directly or indirectly? If no, then you may be in the future. If yes, then you are in good company. Did you know one of three Americans is a blended family member? In fact, there will always be blended families as long as there are divorces and deaths among married couples. Regardless of the composition of your blended family, this fact of life presents unique social, psychological, economic, and legal challenges. In this article we consider some fundamental legal challenges, so you can address them now to protect everyone you love and everything you have later. Specifi- cally, how will you disinherit your ex-spouse, provide for both your new spouse and your own children, and pro- tect the inheritance from unintended consequences? Disinherit Your Ex-Spouse Problem 1: If you have minor children, then your ex-spouse will remain the legal guardian over their “person” and their “purse” until they reach the age of majority under state law. While only a legal finding of

For more information, please contact: Watson Sewell, PL (850) 231-3465, www.

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