Blended Families and Estate Plans

Contents

1. What a blended family is, in the planner’s sense
2. The forgotten form
3. The elective share
4. Trusts that serve a spouse and then the children
5. Portability and the second widowhood
6. Taxes, apportionment and grandchildren
7. The children themselves

Brent O’Mara works with business owners and multigenerational families, and the families in the second group are not always built once. The wider field offers a sobering baseline: researchers writing in The Conversation report that only about 40 percent of Australians have prepared a will, that people become more likely to have one as they age and accumulate assets, and that the people for whom the default rules of intestacy are most likely to miss what they wanted are those in blended families, with complex family arrangements, or wanting to leave money to friends or charities outside the legal categories.⁴ The American rules differ, but the shape of the problem does not: a second marriage brings two sets of children, two sets of expectations and a plan drafted for a household since dissolved.

What a blended family is, in the planner’s sense

A tax reference for advisers uses the term for any of several modern structures but most often for people who have remarried after a divorce, who may have children from the earlier marriages and children together, and who may want to provide for their own children rather than stepchildren if they die first while still providing for the surviving spouse. It notes that the person remarrying may already be bound by agreements with a former spouse, prenuptial, postnuptial or from the divorce, that require continuing support, life insurance for the former spouse or particular beneficiary designations on retirement accounts, and that these have to be read before any new plan is written.¹

The forgotten form

The commonest failure is clerical. Kiplinger notes that in most cases the beneficiary form overrides the will: remarry, update the will, forget the account form, and the former spouse keeps the account.³ CNBC reports the same pattern among advisers’ clients, old employer plans and policies still naming a prior spouse or a relative who has died, and recalls a case decided by the Supreme Court in 2009 in which a long divorced wife, never removed from a form despite waiving her claim in the divorce, received her former husband’s plan instead of the daughter who expected it. Its remedy is to reread every form whenever the family changes, to read what a financial institution has filled in before signing it, and to keep copies at home.⁵ The rules an heir then faces are set out under inherited retirement accounts.

Figure

The documents a remarriage reopens

1. 01
   Prior agreementsPrenuptial, postnuptial and divorce agreements may already require support, insurance or beneficiary designations for a former spouse
2. 02
   Beneficiary formsRetirement accounts and policies pass by the form on file, which a will cannot override
3. 03
   Trust arrangementsA qualified terminable interest property trust can provide for the new spouse and then the children of the first marriage
4. 04
   The trusteeA surviving spouse or a relative as trustee can inflame the children; an institutional trustee is impartial
5. 05
   Elective shareState law may give the survivor more of the estate than the will directs
6. 06
   Tax apportionmentThe will can say which heirs bear any estate tax; otherwise state and federal rules decide

The elective share

A will cannot always do what it says. The tax reference explains that state law entitles a surviving spouse to claim a portion of the deceased spouse’s estate instead of whatever the will or trust left; in a first marriage this rarely matters, because the first spouse to die usually leaves everything to the survivor anyway. In a blended family, where the deceased may have directed assets to children of a prior marriage and only a specified portion to the spouse, the elective share can give the survivor more than the will intended, and the plan has to be drafted with that in mind.¹

Trusts that serve a spouse and then the children

The usual answer is a trust. The same reference describes the qualified terminable interest property trust, known as a QTIP, as the structure blended families most often use to satisfy the surviving spouse while still providing for children from an earlier marriage, and it contrasts a version created during life with one that takes effect at death: the lifetime version is not revocable on divorce, so a former spouse remains entitled to its benefit, while the testamentary version can be changed by rewriting the will. It also warns about the choice of trustee. A surviving spouse or another relative as trustee can make administration difficult where there is animosity with the children, especially when distributions are discretionary, and an institutional trustee may be the better choice because an impartial third party makes the decisions.¹ An irrevocable life insurance trust is another tool the reference lists, able to provide for children of a first marriage or for a surviving spouse while keeping the policy out of the taxable estate; a prenuptial agreement can even limit the new spouse’s inheritance to the proceeds of such a policy.¹ How a will interacts with these instruments is covered under what a will does.

Figure

Portability against a trust in a second marriage

	Relying on portability	Using a trust
How it works	The first spouse to die leaves everything to the survivor, who inherits the unused exemption	Assets of the first to die go into a trust that pays the survivor income and then passes to named heirs
Who controls the assets later	The surviving spouse, who can disinherit stepchildren or favor a new spouse	The trust terms set by the first spouse to die
Remarriage risk	Only the most recent deceased spouse's unused exemption counts, so a second widowhood can erase the first	Unaffected by a later marriage
Fit	First marriages where everything goes to the survivor anyway	Blended families that want to provide for a spouse and still reach children of a prior marriage

Portability and the second widowhood

Since 2011 a surviving spouse has been able to inherit the unused part of a deceased spouse’s federal estate and gift tax exemption, a right called portability. The Journal of Accountancy explained the mechanics when the rule was new: the executor of the first spouse to die must file an estate tax return to make the election, even when no tax is due, and the resulting deceased spousal unused exclusion amount can shelter the survivor’s own estate or lifetime gifts. It also described the trap for anyone who remarries. The survivor’s exclusion is based on the most recently deceased spouse, so a widow who remarries and then outlives her second husband loses the unused exclusion from her first, and if the second husband used all of his exemption, perhaps on bequests to the children of his own first marriage, she has none from him either. The article suggests a prenuptial agreement or a trust as protection.² The tax reference adds that in a blended family portability may not be the right tool at all, because relying on it means leaving everything to the surviving spouse, who then has total control, including the ability to disinherit stepchildren; a trust lets the first spouse to die control where the assets finally go while still providing the survivor with income.¹

Taxes, apportionment and grandchildren

Estate tax, where it applies, can undo careful shares. The reference notes that a will can state how any estate tax is apportioned among heirs and that, absent instructions, state and federal rules decide; New York and Florida, for instance, apportion in proportion to what each heir received. For grandchildren, the generation skipping transfer tax has its own exemption, $15 million per individual in 2026, and allocating part of it to the cash used to fund a life insurance trust can shelter the far larger policy proceeds.¹ The reference also records a Social Security wrinkle: a divorced surviving spouse who remarries before age 60 generally loses survivor benefits based on the prior marriage unless the later marriage ends, while remarriage after 60 does not affect them.¹

Figure

The thresholds a blended family plans around in 2026

generation skipping transfer tax exemption per individual

$15 million

what a married couple can shelter from estate tax using portability

$30 million

remarriage before this age generally ends a divorced survivor's Social Security survivor benefit

Age 60

the length a prior marriage must have lasted for a divorced survivor to claim on it at all

10 years

The children themselves

The people the documents are written around are adjusting to something else. University of Minnesota Extension describes how children react to a stepfamily by age: preschoolers take days or weeks to grasp that the change is permanent and may believe they caused it; elementary age children may feel guilty and often hope their parents will reunite, a hope that remarriage ends; preteens tend to focus their resentment of adult authority on the stepparent, who, as one psychologist quoted there puts it, is an easy target because there is no history of love to lose; and teenagers may resent giving up adult responsibilities, including decisions about family finances, that they held while living with one parent.⁶ Adult children of an earlier marriage bring a version of the same feelings to the estate plan, and the tax reference recommends open conversation alongside trust planning where there is a disparity in age or wealth between the spouses.¹ The format for that conversation is covered under family meetings and family governance.

What the subject cannot do is settle the family. A trust can pay a widow income and then hand the principal to her stepchildren, a prenuptial agreement can fix what a new spouse inherits, and a corrected form can keep an account from going to a former husband, but none of these makes the children of one marriage trust the spouse of the next, and a document drafted to minimize tax can still leave a sense of unfairness that no clause anticipates. The right combination is particular to a family’s own circumstances, and the drafting is for qualified professionals in estate and tax law.