Estate Fights Can Tear Stepfamilies Apart. Here’s How to Avoid the Brawl
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Here's your Money Briefing for Thursday, June 6th. I'm J.R. Whelan for The Wall Street Journal. Dividing up assets when parents die can be a complex emotional task for any family, but especially so for blended families.
Well, with that standard plan, you're really leaving everything up to the surviving spouse. They have no obligation to then leave assets to adult stepchildren. So if you have children from a prior marriage, they could be left out in the cold.
We'll talk with our personal finance reporter, Ashley Ebling, about going beyond the standard estate plan and mistakes to avoid along the way after the break.
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In blended families, a standard estate plan often isn't enough to avoid legal disputes over inheritances. Wall Street Journal personal finance reporter Ashleya Ebling joins me. Ashleya, what typically happens to an estate when a parent dies?
The typical order of operations for married couples with children is for everything to go to the surviving spouse and then to the children. And that's whether you have it set up that way in a will or a trust. The tricky thing is if you have no estate plan, then it's just the default rule, whatever your state law says, and then you could really be in trouble.
Why do standard estate plans often fall short when a blended family is involved?
With that standard plan, you're really leaving everything up to the surviving spouse. They have no obligation to then leave assets to adult stepchildren. So if you have children from a prior marriage, they could be left out in the cold. I spoke to an attorney in Michigan in a worst case scenario. The blended family, the parents had put together a joint trust with the idea that the assets would all be divided among their children when the second one died.
What problem do blended families face when dividing assets after a parent dies?
But the surviving spouse ended up just taking everything out of the trust and instead leaving everything to the one son. So the three children sued and the case is now pending years later, still in Michigan, where they're trying to divvy up the assets.
What's the lesson there? What went wrong?
That was a poor drafting of the trust. That's one thing, like making really clear whether you want just income going to the surviving spouse or if you want a certain amount being left for the children. So really careful drafting of wills and trust is essential.
If step-parents have their own separate inheritances, how should they make a plan as to how the assets be passed down?
One family I talked to, the wife, she and her sister were getting a big inheritance from their father.
How does a standard estate plan leave stepchildren vulnerable?
And he said, oh, I really want this down my bloodline. So she had to talk to her husband and say, well, we have this nice blended family, but I want to make sure that all this money from my father's construction business is going to my kids, not your kids. And she put in a separate trust to ensure that. Usually just having it really written out is super important. Just thinking, oh, I'm going to trust you to do it doesn't cut it.
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