As our families become more complex and fluid, careful estate planning becomes more important. Proper estate planning can not only insure that your intent is fulfilled and your goals met, but can also avoid friction that might alienate family members.
This article summarizes some issues that commonly arise when I work with divorced parents and "blended families."
Life Insurance Beneficiaries: Life insurance is often made payable directly to children. If so, the surviving parent (e.g., the ex-spouse) will probably control the money. Most parents prefer to have the insurance proceeds paid to a trust for the children (such as a testamentary trust created in a will), or to a "custodial" account under California's Uniform Transfers to Minors Act, with someone other than the ex-spouse controlling the money.
Guardianship/Custody: If the custodial parent dies or becomes incapacitated, the other spouse is usually entitled to custody, even if the children have a close relationship with the custodial parent's new spouse. (A new 1993 law provides a special procedure for a terminally-ill parent to appoint a guardian other than the surviving parent.)
Remarriage/New Spouse: As family relationships become more complex, it is important to consider how property should pass when one spouse dies. California's intestate succession laws are often unsatisfactory. Frequently, a testamentary trust can help provide for a surviving spouse while also assuring ultimate inheritance by the deceased spouse's children from a prior marriage.
Living Trust Problems: If a living trust is created to address special estate planning problems, the trust purpose may be frustrated by failure to properly "fund" the trust by transferring legal title to real property and investment accounts. Also, family relationships can be strained if a living trust is administered by a surviving spouse who fails to provide information to reassure the deceased spouse's children from a prior marriage that the trust is being properly administered.
Rights & Duties: When reviewing insurance and retirement plans as part of the estate planning process, be sure to review your divorce judgment. Your ex-spouse may retain rights in a retirement account, or the divorce decree may require maintenance of life insurance payable to the ex-spouse or children.
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