It’s a question that many remarried couples face: If one spouse dies, what happens to the inheritance if there are children from the first marriage?
Consider Tammy, age 55, and her husband Bill, age 60. Both are healthy, but Tammy’s sister recently died and Bill’s father is in foster care, so estate planning is important to both of them.
Bill has two older children from a previous marriage. Tammy has no children of her own, and although she tried to develop a relationship with her stepchildren, they never made much of an effort to get to know her.
Although Bill had about $250,000 in assets before the marriage, Tammy brought about $325,000 of her assets to the marriage. Since then they have built a $1-million nest egg and have their own house.
After all, it’s their money, and they can do what they want with it. Bill wants to leave everything to Tammy in her will. He says his children are irresponsible and can destroy the inheritance.
But Tammy fears that Bill’s condition will further damage her relationship with her stepchildren.
She wonders if there is a plan that can protect her financially while preventing a family ‘war’ if her husband dies before he dies.
On the other hand, if Bill outlives her, Tammy wants to leave her property to her deceased sister.
Blended families increase the complexity of estate planning, and there are many blended families in the US According to data from the Census Bureau (1), in 2021, more than one in five couples (21.2%) who lived together had children from a previous relationship.
That’s why it’s so important for partners in a blended family to start early with estate planning. Unfortunately, many people avoid end-of-life preparations altogether.
About three in 10 US adults (32%) have a will that “specifies what they should do with their property and assets after they die,” according to a survey (2) by the Pew Research Center. Most Americans don’t make a will until they are in their 70s.
If you die without a will – or intestate – the state where you live will decide how your assets are distributed, known as intestacy. follow each other. All of this would happen in state probate courts.
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The only exception would be retirement accounts like 401(k)s and life insurance, which often bypass probate and go directly to a named beneficiary.
When it comes to succession, states follow a hierarchy (3) to decide who owns property and how much, generally in this order:
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Spouse and children
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Parents and siblings
Other countries are following equitable distribution systemwhich means that assets are divided fairly depending on factors such as the duration of the marriage and the financial contributions of each partner in the marriage (4).
On the other hand, a couple preparing a will can give their property to anyone they want (including each other). Property acquired before the marriage is not simply divided.
Fortunately, Bill prepared a will and some assets will go directly to Tammy – including their joint bank accounts, the investments they built together and their joint home.
These are protected under joint tenancy with rights of survivorship (JTWROS) rules governing property owned by partners (5) are partners. In such cases, when one owner dies, the property passes to the other owner – no probate is required.
It would be a different story if they have their own house like’employers alike,’ meaning that Tammy would only be considered to have half of the house when Bill died.
In that case, Bill’s share of the family would go through probate and his children from his first marriage (6) would inherit.
As it stands, Tammy is waiting to inherit everything, and she wants to settle the dispute with Bill’s children.
If Bill dies, Tammy could give money to her two children, perhaps dividing the $250,000 of assets she brought into the marriage equally to each of them.
However, there is no guarantee that it will improve Tammy’s relationship with her stepchildren, and they could still want more.
If Bill’s main objection to his children inheriting his estate is that they have bad money, there may be another way to protect Tammy for life and ensure that something is left for his children.
He could create a Fixed Interest Assets (QTIP) trust (7), a very important tool for blended families.
A QTIP trust ensures that the surviving spouse receives a regular income for life, and enjoys certain tax benefits.
Once the surviving spouse dies, the remainder is paid to the beneficiaries – in this case, Bill’s children.
In addition, the QTIP trust will allow Bill to introduce a ‘spending provision’ for financially insecure beneficiaries. Such an arrangement ensures that such beneficiaries receive distributions over time rather than lump sums.
It also protects the property of the trustor from the liability of the beneficiary (8).
In the meantime, Tammy may want to consider naming her niece as a beneficiary on her retirement accounts and life insurance, meaning that the assets would pass over the balance and go directly to her niece upon Tammy’s death – not her children.
In cases like Tammy’s, there is no right or wrong answer. If Bill doesn’t want to leave his money to his grown children, that’s his prerogative. Nor is Tammy under any obligation to explain her financial choices to her stepchildren.
He may not be able to avoid ‘war’ with his stepchildren. However, it would be good for her husband to talk to them about his wishes nowwhile he was alive, instead of leaving his wife to deal with the feelings of his children after his death.
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We rely only on vetted sources and reliable third-party reports. For details, see us editorial rules and guidelines.
US Civil Service Office (1); Pew Research Center (2); Justina (3); LawInfo (4); Estate and Probate Legal Group (5); Bratton Law Group (6); Investopedia (7); 411 Probate (8)
This article provides information only and should not be considered advice. Offered without warranty of any kind.
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