Is Your Family Like the Brady Bunch?

Ensuring your family's future when kids from previous marriages are involved 

Ric Edelman: It's Wednesday, July 31st. On today's show, does your family look like the Brady Bunch? Now, that mere question is going to speak volumes, because you either know exactly what I'm talking about, or you're listening to this with now a very quizzical ear, wondering, what on earth is he talking about? 

The Brady Bunch, of course, was a highly popular television show in the 1960s, a kids show. The Brady Bunch was simply the story of a man who was divorced with three children from a prior marriage. Or maybe he was a widower, I don't know, I was eight years old. And he marries a woman who herself was divorced or widowed, and she had three children from her prior marriage. They come together in a new family, with now six children under roof and a maid of course. No way they could do this themselves, so the story went. And hence the TV show, is called The Brady Bunch.  

That wasn't just Hollywood talking. Today, 20% of couples have a child that was produced by a prior partner of one of them, one out of five US households. This leads to complex estate planning because when you and your spouse get together and have children, while the children are all yours and you all love them equally, or at least you want them to think you do. And when it comes to your estate planning, you just do the thing that most people do. In my will, I'm gonna leave everything to my spouse, and when my spouse dies, everything goes to the kids. Typically, it all goes to them equally. That's the most simplistic and most common approach to estate planning. People who don't love their children equally or loath to have them find out, but sometimes there are issues within the family. You might have a child who's a spendthrift, or you might have a child with a drug or alcohol addiction, or who's in prison, or who has a mental health issue, and you don't want to leave them a bunch of money because they'll simply squander it, or do bad things with it, or they'll lose it through scam or fraud or who knows what. 

On the other hand, you may have children who say one is fabulously successful financially more so than another child. You know, somebody becomes the CEO of a startup that makes billions. Whereas the another child's a school teacher and you therefore conclude one of your children needs more money than the other. And so you give more of your assets to that child than the other child. Lots of stuff happens within a given family. And that's what estate planning is all about, but none of that compares to the complications when there are children from prior marriages or prior relationships. Now you're dealing with children as well as stepchildren. And now the estate planning can get incredibly complicated.  

So the mere question I have for you is this: Are you a member of a Brady Bunch family? Because if you are, then one day in the future, you're going to find yourself dealing with the estate implications of that complicated family tree. And it's going to be one of two ways that you find yourself engaged. 

Either you're the elder who's going to be leaving assets to children and stepchildren, or you're going to be one of those children and stepchildren, the recipient of assets, or actually I should probably phrase it in a different way. You'll be the supposed recipient. See, this is really the key. If you have children and stepchildren, are you going to leave all of the assets to all of them equally? 

Let me give you a very common scenario that I used to see all the time, when I was practicing as a financial advisor. He has children from a prior marriage. So does she. They now marry. He dies, leaving her his money. When she dies, she leaves everything to her children. His children get nothing. Is that something that you would suppose he would want to have happen? Is that something you would suppose that his children would want to have happen? This is why estate planning is so vitally crucial. And this is why the estate planning documents can get rather complicated. And there are a whole lot of different kinds of documents that you need to consider for your circumstances. 

There's the basic will, of course. This is the most fundamental of all documents. That has the most basic instructions for who gets what. The distribution of your stuff. But sometimes the will is insufficient, because in a will, basically, everybody gets everything all at once. And you might not, for the reasons I cited earlier, having everybody getting everything all at once. 

If you've got a spendthrift, you might rather perhaps give them an allowance. If you have a special needs child, you may prefer to have the money managed on their behalf by somebody to ensure their care and well-being. There could be all kinds of reasons where you would want to delay or reduce the amount that they receive, for all kinds of reasons you can think of better than me in the dynamics of your household. 

For this reason, trusts come into play. There are other reasons as well, such as taxes, how you distribute the money, who you distribute it to, when it's distributed has an implication tax wise. Trusts are often used to minimize or defer or delay the tax liabilities. And then there are things called life estates, where for example, you own a home, and you get married, and your new spouse comes into the home you own, and when you die, you're happy to have your new spouse continue living in the home, but when the spouse dies, you want the home to go to your heirs. Not your spouse's heirs. This is called a life estate. Let them live in the house. Let them enjoy it while they're alive. But when they're gone, or should they move out, the house remains in your estate for it to be distributed under your wishes to your heirs. So a life estate is another methodology, another set of documents that people turn to. 

And then there's the complication of your 401k and IRA. If you have retirement accounts and this would include annuities as well as all other kinds of workplace plans, 403Bs and KIOs and SARSEPs and SEPIRAs and solo 401ks, you name it. All of these kinds of accounts have a named beneficiary. You might have recalled this when you signed up for your 401k at work or your thrift savings plan, if you're a federal employee, they asked you to name your heir. You had to say so when you opened an IRA account. Who's your beneficiary? And they allowed you to choose a primary beneficiary who gets the money when you die, or a secondary beneficiary if the primary dies before you do. Well, here's the thing a lot of folks don't know. Those beneficiary designations on retirement accounts, IRAs, and annuities, and also with life insurance, those beneficiary designations trump the wills and the trusts. In other words, I don't care what you said in your will. I don't care what instructions you wrote down in your trust, the beneficiary designation of the IRA rules. So think about this.  

I once had a case where, a woman was a client of our firm, she married a gentleman. It was his second marriage. And, he had been married 20 years earlier. He hadn't seen his ex in that many years. They get married. He later dies. And at that point she discovers he had an old retirement account with a former employer, someone he hadn't worked with for 20 years. And he had named his old wife, his first wife, the ex, as his beneficiary, because that's who he was married to way back when. 

He never updated the documents. So when he died 20 some years later, the ex, who he hadn't seen in 20 years, got that money. His widow got nothing. So it's vital that you maintain all of these documents with current review. That's why I've always said you ought to make sure that the documents are saying what you want them to say. And that means every five years, you ought to read the documents. You'd be amazed what they say, what you said way back when, because life changes, children are born, people die, attitudes about beneficiaries and charities shift. You need to review the documents to make sure they still leave your money to the people you today want to receive it. 

And that leads to two other documents, a prenup and a post-nup. You know, it used to be that a prenuptial agreement was something only used by very rich people, typically very rich people who are getting married to people who weren't so rich, so that the money stays in the bloodline. But these days, prenups are equally important for people who don't have a lot of money. 

In fact, you could argue it's even more important for people who don't have a lot of money. But do have a lot of debts. If you're marrying somebody who has $50,000 in student loan debt, do you want to inherit their debt when they die? Credit card debts, other legal liabilities? So a prenup is something that a lot of people are recognizing they need to tend to, even if you're entering the relationship without any assets. 

And second, what if you're in that relationship, you're already married and you're now recognizing, gee, I didn't tend to any of this. That’s what a post-nup is all about. After the marriage, even though you're in the marriage, you have both of you sign postnuptial agreements. You need to get good legal advice to make sure these documents are not only gonna do what it is you want them to do, but they will hold up in court should they ever be challenged. And not just by your spouse or widow, but by the children. Or the stepchildren, or more accurately, the people who aren't heirs who feel they should be.  

And related to all the above, finally, choosing your executor and choosing your trustee – who is it that's going to manage your estate? Is it going to be a family member? And if so, who, which of your children? One mistake is naming all of your children as co trustees or executors, cause now they've got to reach decisions equally. And what happens if they disagree? Simultaneously, if we're going to hire a professional to be the executor or trustee, say a law firm, or financial advisor, well, now you're dealing with the fees and expenses associated with a bank trust department or a law firm doing this. So lots to think about and no better way than for you to have that conversation with a financial advisor who can help you walk through all of this. Talk with your lawyer, talk with your accountant, talk with your financial advisor. If you are that financial advisor, estate planning is one of the most important, vital, and valuable services that you can provide to your clients. 

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Ric Edelman: On tomorrow's show, shocking new stats regarding caregiving. 

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Ric Edelman: I’m glad you’re with me here on The Truth About Your Future. If you like what you're hearing, be sure to follow and subscribe to the show, wherever you get your podcasts, Apple, Spotify, YouTube – and remember leave a review on Apple podcasts. I read them all! Never miss an episode of The Truth About Your Future. Follow and subscribe on your favorite podcast app. 

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