It\u2019s a question many remarried couples face: If one spouse passes away, what happens to the inheritance if there are children from a previous marriage?<\/p>\n
Imagine Tammy, 55, and her husband Bill, 60. They\u2019re both healthy, but Tammy\u2019s sister recently passed away and Bill\u2019s father is in a care home, so estate planning is top of mind for both of them.<\/p>\n
Bill has two adult children from a previous marriage. Tammy doesn\u2019t have children of her own, and though she tried to cultivate a relationship with her stepchildren, they never made much of an effort to get to know her.<\/p>\n
While Bill had about $250,000 in assets prior to the marriage, Tammy brought about $325,000 of her own assets into the marriage. They\u2019ve since built up a $1-million nest egg and own their home.<\/p>\n
Ultimately, it\u2019s their money, and they can do what they want with it. Bill wants to leave everything to Tammy in his will. He says his kids are irresponsible and would waste an inheritance.<\/p>\n
But Tammy fears that Bill\u2019s position will strain her relationship with her stepchildren further.<\/p>\n
She\u2019s wondering if there\u2019s an estate planning structure that would protect her financially while preventing a family \u2018war\u2019 if her husband passes away before she does.<\/p>\n
On the other hand, if Bill outlives her, Tammy wants to leave her own assets to her late sister\u2019s daughter.<\/p>\n
Blended families add complexity to estate planning, and there are a lot of blended families in the U.S. According to Census Bureau data (1), by 2021, more than one in five (21.2%) couples who lived together had children from a previous relationship.<\/p>\n
That\u2019s why it\u2019s all the more important for partners in blended families to start early on an estate plan. Unfortunately, most people avoid end-of-life arrangements altogether.<\/p>\n
Only about three in 10 U.S. adults (32%) have a will that \u201cdescribes what to do with their assets and belongings after they die,\u201d according to a study (2) by Pew Research Center. Most Americans don\u2019t create a will until they\u2019re in their 70s.<\/p>\n
If you die without a will \u2014 or intestate \u2014 the state where you live will determine how your assets are distributed, known as intestate succession. All this would take place in state probate courts.<\/p>\n
Read More: 5 essential money moves to make once you\u2019ve saved $50,000<\/a><\/p>\n The exception would be solely owned retirement accounts like 401(k)s and life insurance, which typically skip probate and go directly to the named beneficiary.<\/p>\n When it comes to intestate succession, states follow a hierarchy (3) to decide who inherits assets and how much, generally in this order:<\/p>\n Spouse and children<\/p>\n Parents and siblings<\/p>\n Some states follow the equitable distribution method, which means assets are split fairly depending on factors such as the duration of the marriage and the financial contributions of each spouse to the marriage (4).<\/p>\n In contrast, couples who prepare wills can bequeath their assets to whomever they wish (including to one another). Property acquired before marriage isn\u2019t automatically split.<\/p>\n Thankfully, Bill has prepared a will and there are certain assets that will go directly to Tammy \u2014 including their joint bank accounts, investments they built together and their jointly owned home.<\/p>\n These are protected under joint tenancy with rights of survivorship (JTWROS) laws that govern assets jointly owned (5) by spouses. In such cases, when one owner dies, the assets pass to the other owner \u2014 no probate required.<\/p>\n It would be a different matter if they owned their home as \u2018tenants in common,\u2019 meaning that Tammy would be considered to own only half the home upon Bill\u2019s death.<\/p>\n In that scenario, Bill\u2019s share of the home would go through probate and his children from his prior marriage (6) would inherit.<\/p>\n As it stands, Tammy stands to inherit everything, and wants to proactively address tensions with Bill\u2019s children.<\/p>\n If Bill dies, Tammy could give his two children some money, perhaps splitting the $250,000 in assets he brought into the marriage evenly to give to each of them.<\/p>\n However, there\u2019s no guarantee that will improve Tammy\u2019s relationship with her stepchildren, and they could still demand more.<\/p>\n If Bill\u2019s main objection to his children inheriting his assets is that they\u2019re bad with money, there may be another alternative that would protect Tammy for life and ensure something is left for his kids.<\/p>\n He could set up a Qualified Terminable Interest Property (QTIP) trust (7), a particularly useful tool for blended families.<\/p>\n A QTIP trust ensures the surviving spouse receives regular income for life, and enjoys certain tax advantages.<\/p>\n Once the surviving spouse passes away, the balance is paid to the beneficiaries \u2014 in this case, Bill\u2019s children.<\/p>\n Moreover, a QTIP trust would allow Bill to add a \u2018spendthrift provision\u2019 for beneficiaries who are financially irresponsible. Such a provision ensures that such beneficiaries receive distributions over time rather than everything as a lump sum.<\/p>\n It also protects the trustor\u2019s assets from the beneficiary\u2019s creditors (8).<\/p>\n In the meantime, Tammy may want to consider naming her niece as a beneficiary on her retirement accounts and life insurance, which means those assets would skip probate and go directly to her niece upon Tammy\u2019s death \u2014 not her stepchildren.<\/p>\n In situations like Tammy\u2019s, there is no right or wrong answer. If Bill doesn\u2019t want to leave his money to his adult kids, that\u2019s his right. Nor is Tammy under any obligation to explain her financial choices to her stepchildren.<\/p>\n She may not be able to avoid a \u2018war\u2019 with her stepchildren. However, it would be best if her husband talked to them about his wishes now, while he\u2019s alive, rather than leaving his wife to deal with his children\u2019s reactions after his death.<\/p>\n Join 250,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n U.S. Census Bureau (1<\/a>); Pew Research Center (2<\/a>); Justia (3<\/a>); LawInfo (4<\/a>); Estate and Probate Legal Group (5<\/a>); Bratton Law Group (6<\/a>); Investopedia (7<\/a>); 411 Probate (8<\/a>)<\/p>\n This article provides information only and should not be construed as advice. 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