Blended families and the challenges of asset distribution

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Beginning in the 1970s, Americans began divorcing and remarrying in greater numbers than ever before, expanding the definition of family.

Now, trust and estate attorneys are starting to hear more often from members of those blended families unhappy about the distribution of assets after an elder’s death.

“As the baby boomers are starting to pass away, you’re seeing more and more of these types of fights for a variety of different reasons,” said Edward Parent, a partner at Silverman Thompson in Baltimore who specializes in fiduciary litigation. “You have a stepparent and perhaps siblings that just didn’t have that family bond that you have growing up, and so it breeds a lot of resentment and mistrust.”

Parent and other estate and trust attorneys emphasized that the No. 1 way to head off litigation is to plan.

“The worst thing that a person can do is nothing, meaning no planning,” Parent said. “You’d be surprised how many people just go through their lives; they’re very busy. (Estate planning is) just not something they’re thinking about, and then, God forbid, something happens to them, and if they haven’t properly planned, you could leave a mess.”

No will

Dying intestate, or without a will, means the state will parcel out “probate assets,” or possessions held in the decedent’s name alone. (Jointly held assets, such as houses or bank accounts, generally do not go through the probate process, nor do retirement accounts with a designated, living beneficiary.)

“The state’s going to determine what happens to their estate rather than what they want to happen to their estate,” said David Diggs, of the Law Office of David V. Diggs in Millersville, adding that on occasion, he will summarize Maryland’s estate and trust article to “scare people into having wills.”

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If a decedent without a will leaves behind a spouse and any minor children, the surviving spouse receives 50% of the estate, and the children share the rest. In cases in which the decedent has adult children from a prior marriage, the surviving spouse is entitled to the first $100,000 of the estate, after which any remaining assets are divided between the spouse and the adult children.

Avoiding litigation

A prenuptial agreement can head off disputes among survivors in blended families, said Laura Lynn Thomas, founder and principal at Legacy Legal Planning in Columbia and the chair of the Maryland State Bar Association’s Estate & Trust Law Section Council.

“The No. 1 thing to do to avoid the potential for any litigation after a death, if it’s a second or third or fourth – or even a first – marriage, is to have a prenuptial agreement that clearly states what the rights are,” Thomas said.

Thomas also highlighted the importance of reviewing beneficiary designations.

“A lot of assets are handled by beneficiary designation these days,” she said, citing federal employees’ savings plans, in which the default beneficiary is generally the surviving spouse.

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“That may not be your intention in a second marriage situation,” she said. “Make sure beneficiary designations are up to date.”

Determining who should be the personal representative, or executor, of an estate is also key to preventing issues down the line.

“Is it going to be the surviving spouse; is it going to be one of the adult children? I think transparency and a clear discussion about that might help avoid bruised feelings later on,” Diggs said.

Above all, attorneys emphasized, it is crucial to inform family members about estate plans.

Thomas said she advises clients to talk with their family about their plans – or, if that is too uncomfortable, to write them a letter.

“It doesn’t get rid of the chance of litigation, but it does allow families some insight into why they made the designations they did,” she said.

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Trusts and complex estates

For wealthy individuals with complex estates, Parent said he often recommends a trust.

He gave the example of a decedent with a will who owned a house in Baltimore County and a beach house in Rehoboth. If the properties were not jointly titled, the executor of the will must open a primary probate case in Maryland, as well as a second, ancillary, probate case for the beach house in Delaware. Among its advantages, a trust allows an estate to bypass probate while also providing privacy, as the transfer of property through a trust does not enter the public record.

Parent said: “Sometimes, a trust makes sense if there’s no one-size-fits-all circumstances, and that’s why, again, I always tell people: Go do your research and find a good estate-planning attorney – there are excellent ones around here – who can walk you through all those options.”