Blended families—those including spouses or partners with children from previous relationships—face unique estate planning challenges. According to recent studies, over 20% of families today 1 include children from previous relationships, and about 35% of Americans report 2 that they or someone they know has experienced family conflict due to the absence of an estate plan.
An estate plan for a blended family that fails to integrate complicated family dynamics, or worse yet, no estate plan at all, can lead to unintended consequences that can fracture family relationships and diminish generational wealth.
Quick heads-up: Estate planning isn’t one-size-fits-all—especially when blended families and big emotions are involved. This article is here to give you helpful info and ideas, but it’s not legal or tax advice. Definitely loop in your estate planning attorney or tax pro before making any big decisions. You don’t want a DIY plan that accidentally starts a family feud.
The Challenges of Blended Families
Fair Vs. Equal Inheritances
Estate planning is about balancing priorities. You want to provide for a surviving spouse and also secure your children’s inheritance. But how do you decide what’s right when your family’s needs and circumstances vary? One of the toughest issues in blended family planning is deciding what’s “fair” vs. what’s “equal.” By “equal,” we usually mean treating everyone the same. “Fair,” however, might mean each gets what they need or deserve, which isn’t always an identical amount.
For example, if one of your children is significantly more financially secure than the others, you might decide that fairness means leaving a bit more to the ones with greater need. Or if one child helped you build your business while the others chose different paths, you might compensate by giving that child a larger share of the company.
Unintentional Disinheritances
Without careful planning, it’s possible for biological children to be disinherited in blended families. A simple estate plan might leave everything to the surviving spouse – but that surviving spouse may not have any legal obligation to later give anything to the stepchildren. This can happen if, say, all assets go outright to your spouse, and they later leave those assets to their own children (i.e., your stepchildren), bypassing your kids entirely.
Age Gaps
Blended families often form later in life, and it’s not uncommon that there’s an age difference between the spouses. Say one spouse is 15 or 20 years older – it raises complex planning questions. Chief among them: the younger spouse may live decades longer, which can delay when children from the older spouse’s first marriage receive their inheritance.3 I’ve encountered situations where the surviving second wife was almost the same age as the first set of kids. Naturally, those kids were uneasy knowing that their inheritance was locked up until this very vital stepmother eventually passed.
Another consideration with age gaps is retirement planning. If you’re much older, you might be tapping retirement funds or taking Required Minimum Distributions (RMDs), while your younger spouse is decades from retirement. Your estate plan should factor in that your surviving spouse might need assets to last for a very long time (maybe to age 90+).
Wealth Disparities
When there’s a big wealth disparity between spouses (common in second marriages where one partner built a successful business or received a large inheritance, and the other did not), planning is equally important. The less-monied spouse may need financial protection if the wealthy spouse dies first – but the wealthy spouse’s children may be expecting to inherit the bulk of those assets. One approach in such cases is to grant the surviving spouse specific, limited rights, such as a life estate in a residence.3 If you own the family home outright and want it eventually to go to your kids, you could give your spouse the right to live in the home for life, perhaps with the trust or estate paying for major expenses, and then the home would pass to your children.
This gives the spouse a place to live (so they’re taken care of) but preserves the asset for the next generation. You’d want to set conditions – who pays for insurance, taxes, can the spouse sell or rent it, etc.– usually, the agreement is that they can live there but not sell the property3, and if they move or remarry, the life estate might end.
Potential Blended Family Estate Planning Solutions
Trusts can be designed very creatively to address the inheritance concerns we discuss above. Here are a couple of specific trust structures that are frequently used: the QTIP trust and the bypass trust. Each serves a purpose in balancing support for a surviving spouse with protection for children, and they offer some valuable tax benefits for high-net-worth individuals.
QTIP Trusts
QTIP Trusts (Qualified Terminable Interest Property trusts) are practically made for blended families. A QTIP trust provides income 3 (and possibly certain principal distributions) to your surviving spouse for their lifetime, but crucially, it preserves the principal for your children (or other chosen heirs) after your spouse passes. In other words, your spouse is taken care of – they can use the trust income to maintain their lifestyle – but they can’t reroute the trust assets to someone else.
When your spouse dies, whatever remains in the trust goes to the beneficiaries you specified (e.g., your kids). From a tax perspective, QTIP trusts are also efficient: assets in a properly structured QTIP qualify for the marital deduction, meaning no estate tax is due at the first spouse’s death. The assets are included in the surviving spouse’s estate later, but you’ve at least deferred the tax, and you maintained control over the final destination of the wealth. This can help lock in your intended ‘fair’ arrangement and reduce the risk of future disputes.
You can also tweak the trust to give adult children some interim benefits – for example, allowing discretionary distributions for children’s major life events even while the spouse is alive or using a unitrust structure so the spouse’s payout is a percentage (letting excess growth potentially be distributed to kids). The goal is to prevent an outcome where children are waiting 30+ years and possibly never see the legacy you intended for them.
Bypass Trusts
Bypass Trusts (Credit Shelter Trusts) are another staple, especially for high-net-worth couples concerned about estate taxes. In a bypass trust plan (sometimes called an A/B trust plan), when the first spouse dies, a portion of the estate – up to that spouse’s estate tax exemption amount – goes into an irrevocable trust (the bypass trust) for the benefit of the surviving spouse and children. The surviving spouse can typically receive income and limited principal from this trust (often under standards like health, education, maintenance, and support), but the trust principal bypasses the surviving spouse’s estate.4 The remaining assets (above the exemption amount) could go to the spouse outright or into a marital trust (like a QTIP) that is subject to tax later.
| Feature | QTIP Trust | Bypass Trust (Credit Shelter) |
|---|---|---|
| Main Goal | Control who eventually gets the money, usually for blended families | Permanently dodge estate taxes on appreciation |
| Who controls money after you die? | Spouse gets income but can't redirect principal | Spouse has limited access, also can't redirect principal |
| When do taxes happen? | Taxes delayed until spouse #2 dies | Taxes avoided entirely on growth of assets |
| Good for | Blended families, remarriage concerns | Wealthy couples primarily worried about estate taxes |
| Money for kids earlier? | Can be tweaked to allow kids limited early access | Usually kids wait until spouse #2 dies, limited early access |
| Estate tax treatment | Included in surviving spouse's estate (delayed tax) | Exempt permanently after first spouse's death |
Irrevocable Life Insurance Trusts
In blended families, irrevocable life insurance trusts (ILITs) can simplify estate planning by providing a separate inheritance pool. For instance, an ILIT-funded life insurance policy could pay out directly to children from a prior marriage, leaving other existing assets intact for the surviving spouse. This approach can help prevent complicated asset division and family conflicts, while also providing funds for estate taxes or other significant expenses.
Bringing It All Together
Families evolve – you might have a new marriage, new stepkids or grandkids, or changed your mind on some provisions. Every decision should support your broader goals: financial security for your loved ones, fulfillment of your legacy wishes, and efficient wealth transfer across generations. If you’re a business owner, you have even more considerations: Are you leaving the business to your children? Will your spouse have any income from it? Do you need a buy-sell agreement to provide liquidity for one party while the other keeps the business? These are all areas where estate planning intersects with retirement and business planning.
If you’re not sure whether your estate plan is robust enough for your blended family, click the button below–we can provide a review and analysis to help ensure your legacy and loved ones are protected, your assets pass smoothly according to your wishes, and everyone still gets along at Thanksgiving.
Sources:
- https://www.census.gov/library/stories/2023/08/multiple-partners-multiple-children.html
- https://www.plannedgiving.com/legacy-box/wills-and-estate-planning-statistics/
- https://www.financialplanningassociation.org/article/journal/JAN22-navigating-estate-planning-blended-families-OPEN
- https://www.legion.org/information-center/news/planned-giving/2023/june/bypass-the-estate-tax
Disclosures
Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies have the potential for profit or loss. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author/presenter as of the date of publication and are subject to change and do not constitute personalized investment advice.
A professional advisor should be consulted before implementing any investment strategy. WealthGen Advisors does not represent, warranty, or imply that the services or methods of analysis employed by the Firm can or will predict future results, successfully identify market tops or bottoms, or insulate clients from losses due to market corrections or declines. Investments are subject to market risks and potential loss of principal invested, and all investment strategies likewise have the potential for profit or loss. Past performance is no guarantee of future results.
Please note: While we strive to provide accurate and helpful information, we are not Certified Public Accountants (CPAs). The information in this article is intended for informational and educational purposes only and should not be interpreted as tax advice. It is crucial to consult with a CPA or tax professional to discuss you
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