Estate Planning for Blended Families

Submitted by Landon Reeves on Sun, Jan 13, 2019 - 10:25

After having several clients and folks in the Batesville community ask me some variation of the following question, “what is the most common issue that you come across that divides families”; I decided to write this blog and explain this common problem that can be easily addressed and resolved.

Without question, the single most common and contentious issue that I come across that divides families is the dilemma of blended families where the two parents (or step-parents) do not have a Will or an estate plan in place.

Let’s start the discussion with an example that I come across ALL THE TIME:

Mike and Carol are both single adults each with children from a previous marriage. Mike’s children, Greg and Peter, are fairly responsible young adults, and they like Carol and her two children from a previous marriage, Jan and Marcia, who are also fairly responsible young adults. Eventually, Mike and Carol decide that this group must somehow form a family and they eventually married as Mr. and Mrs. Brady, and that’s the way that they became the Brady Bunch.

When they got married, Mike already had a house, a 250 acre farm that he and the boys had always worked on and built up, 5 acres of commercial land in town that he inherited from his father, a bank account with about $30,000, a truck and a tractor, all of which is in his name. Before marrying Mike, Carol had 2 acres that she inherited from her father that has a mobile home on it and a bank account with about $850.00, all of which is in her name.

The family lives on Mike’s farm for the entire time of their marriage. After being married for two years, Mike and Carol decide to buy another 50 acres that adjoins their 250 acre farm to make it a 300 acre farm. At that point, they decide to put the house, the 250 acre farm, the 50 acres, and the 5 acres of commercial land in both of their names, Mike and Carol Brady.

Neither Mike nor Carol have a Will, a Trust, or any kind of estate plan in place. Mike tells Greg and Peter several times throughout their adulthood, “Don’t worry about our farm, our land, and our money, if something happens to me, you boys know that Carol will take care of you and see to it that you’re treated right. I plan on giving that 250 acres to you Greg and I plan on giving that 5 acres of commercial property to you Peter. You boys will just have to split the other 50 acres and the house with her girls, Jan and Marcia.” Greg and Peter know that Carol is a sweet, honest, trustworthy and loving person and would never do anything vengeful or dishonest and so they don’t think too much about it.

Mike and Carol stay married for 22 years and have a happy life together. Each of their kids, Greg, Peter, Jan and Marcia all get along well and they have all went their separate ways and started their own families. Mike and Carol no longer have any kids in the nest and because there has never been any turmoil or serious issues between any of the kids, they don’t worry too much about the kids fighting over their property or money when they pass. Like everyone else in the world, each of them think that if they become really sick and it looks like one of them might pass away in the near future, they will quickly run down to their lawyer and get them a Will or a Trust at that point, but right now they’re both healthy and a Will would just be a waste of $200.00.

(Author’s note in sarcasm: Mike and Carol have a very valid point here because it’s common knowledge that we all know exactly when we will die, we will almost certainly be given a two week notice when that time approaches, and $200 to protect my children would be a monumental waste of money.)

After 22 years of marriage, Mike has a heart attack and passes away at the age of 75. He has had high blood pressure for close to five years and his cholesterol hasn’t always been the best, but this heart attack was not on their radar at this point. Not to worry though, after Mike’s passing, Carol reassured the boys that they would get their daddy’s farm and farm land that he built up and worked on all those years, the 5 acres of commercial property that was inherited from their granddad, and any money that their father had saved up himself. The boys knew that Carol wouldn’t go back on her word so they trusted that things would work out fine. Carol survived Mike and lived on the family farm for another nine years until she passed away at the age of 81.

Now comes the question posed to the family, the children, and their attorney: What happens with my Dad’s property, what happens with Mom’s property, and what happens with the family property?

Mike’s Property: Well, to give you the answer first, Peter and Greg get almost nothing. Your question now should be “How is that possible? Their Dad had the 250 acre farm and the house that those boys built and worked on for all those years. Their Dad had that 5 acres of commercial property in town he inherited, and he also had a truck and some farm equipment. That was all their father’s property before he met Carol. How do they get nothing?”

All this is true, but, because Mike refused to get a simple Will or Trust and to collaborate with Carol about how things would be divided up, Mike’s boys are not entitled to any of the property by law. I will explain how.

First, Mike did not have a Will in place stating where his property was to go upon his death or how his one-half interest in any of their jointly held property was to be given to his boys. Instead, when he died, all of the property in his and Carol’s name (held jointly) went directly to Carol (the 250 acre farm, the house, the additional 50 acres to the farm, the 5 acres of commercial land, and the bank account). When Mike died, the only property that was solely in his name was the truck and the tractor. So, to put it bluntly, when he passed without a Will or a Trust, all of the property went directly to Carol with the boys only getting a rusted over, 28 year old farm truck and an old tractor that may or may not even run.

Carol’s Property: What happens to the property when Carol passed? Well, when she passed, she also passed without a Will or a Trust and so, by law, all of her property goes to her children, Jan and Marcia. Because Mike died before Carol and without a Will, when he passed all of the property that was held in both of their names (held jointly) then went directly to Carol and became solely owned by Carol. At that point, Carol now owns almost everything on the farm and all the property, and she could have saved the day and put together a Will stating that certain pieces of the property and the estate were to go to the boys and certain pieces to the girls and that everything would be divided up fairly, but that was just a conversation that she wasn’t comfortable having and she figured things would work themselves out. She really didn’t like to think about things like that so she decided to leave things be.

Well, when Carol passed everything went down to her two girls, Jan, who has lived in California for 12 years, and Marcia, who lives a few miles down the road from Mike and Carol’s house. As it stands, Jan and Marcia own the 250 acre farm, the extra 50 acres, the house, the 5 acres of commercial property, and any money left by Mike and Carol. Greg and Peter only have the rusted old farm truck and a tractor that won’t run.

Marcia certainly sees the unfairness in this division of property and knows that Carol intended for much of the farm property to go to the boys and certainly that they were to get the 5 acres of commercial property from their dad and granddad. When Marcia explains this to Jan, Jan then does some quick research and finds out that the 300 acre farm and the house are worth about $600,000 and that the 5 acres of commercial property are worth close to $500,000. Jan tells Marcia, “there is NO WAY we’re giving away that property to those boys, do you not see much it’s worth! Plus, if Mom and Mike wanted the boys to have it, then they would have specified and they didn’t, so its not our fault that everything falls to us. It must be how they wanted it otherwise they would have changed it.” Marcia knows that Jan is not right in saying that is how their parents wanted things to be divided, but she also knows that she does not like to go against Jan, plus, that is an awful lot of money. So, Marcia decides to let Jan take the reins and handle the division of the property and the process of probate.

At the end of it all, Marcia and Jan legally own and receive the entire 300 farm and the house (valued at $600,000), the 5 acres of commercial property (valued at $500,000), the money, and any personal possessions they want (everything with a total value of over $1.2 million). The boys are left with the rusty old farm truck and the rusty old tractor and a few menial possessions of their Dad’s, but nothing too valuable because the girls were entitled to the personal possessions and took the valuable items for themselves with a total value of about $5,000.

Does that seem fair to you? Don’t you think that if Mike and Carol knew how things were going to play out that they BOTH would have wanted things to be done differently? I think that is a safe assumption. Can’t you also imagine how angry, hurt, betrayed, and sick that Peter and Greg must feel knowing that it all could have been prevented and everything done in an equal and fair manner? In fact, Peter and Greg only have their dad, Mike, to blame because, after all, it was his duty as their father to make sure that his property was divided as he wanted it to be and to make sure that his boys were taken care of and not left it up to someone else to decide.

This very common problem could have been prevented all together by a quick call to their attorney, one hour of work, and about $200.00. Don’t let this happen to you and your family. Be smart, plan ahead, update your plan as your life changes, and have this conversation with your attorney in order to protect your family.