Blended family estate planning and the first death

Take a hypothetical couple, Mark and Lisa. Mark has three adult children from his first marriage, and Lisa has a fourteen-year-old son. They want all four children to share equally once both of them have died, so they sign matching wills: each leaves everything to the other, and the survivor leaves everything to the four children in equal shares.

The plan works only if the survivor keeps it for the rest of their life, a condition neither will states. The arrangement is common enough to have a nickname, the “I love you” will. In a blended family the first death moves everything the wills govern to the stepparent, and what the first spouse’s children receive afterward depends on documents the stepparent controls. In a 2010 survey, Pew Research Center found that 42 percent of adults had at least one step relative, and Pew’s analysis of 2013 Census data found that 40 percent of new marriages included at least one spouse who had been married before.

What the survivor can change

A will can be revoked at any time before death, by a later will or by an act such as destroying it (MCL 700.2507 is a typical statute). Matching wills do not change that. Michigan provides that “the execution of a joint will or mutual wills does not create a presumption of a contract not to revoke,” and a contract not to revoke can be proved only by the will’s own terms, by an express reference in the will plus other evidence, or by a writing the decedent signed (MCL 700.2514). Florida requires a signed writing with two attesting witnesses (F.S. 732.701). Even a valid contract does not stop the survivor from signing a new will. It gives the children a claim against the survivor’s estate, which they have to bring and prove.

So if Mark dies first, Lisa receives what Mark’s will controls and can leave it however she chooses. No bad faith is required. She may remarry, move closer to her son, fall out with a stepchild, or see things differently in twenty years. A joint revocable trust can produce the same result, because many joint trusts add the deceased spouse’s share to a survivor’s trust that the survivor may amend.

A joint trust can instead be written so that the deceased spouse’s share cannot be changed. In In re James M. Kurtz Protection Trust (Mich. Ct. App. No. 360605, March 23, 2023), a remarried couple’s 1995 joint trust said the surviving grantor “may not revoke or amend the dispository portions” after the other grantor’s death. After his wife died, the husband restated the trust, named a new remainder beneficiary and deeded a property out of the joint trust. The Court of Appeals held the restatement void because the dispositive terms became irrevocable at the first death, and held that the transfers out of the trust violated its terms. By default, each settlor of a Michigan joint revocable trust may revoke or amend only the portion attributable to that settlor’s own contribution, with different rules for community property (MCL 700.7602). The trust’s terms usually control, though, and many joint trusts give the survivor power over the whole. The Kurtz trust said the opposite in express words. The opinion is unpublished and does not bind later courts.

Assets that pass outside the will

Much of a typical estate does not pass under a will at all. Beneficiary designations on insurance policies, retirement plans and accounts, and payable-on-death and transfer-on-death registrations are nontestamentary: they pass under the contract or registration, not the will (MCL 700.6101, Michigan’s version of Uniform Probate Code section 6-101). Property a couple owns jointly with survivorship rights passes to the survivor by its title.

A 401(k) adds a federal rule. Under ERISA section 205, a 401(k) or profit-sharing plan that avoids the annuity rules must pay the vested balance to the surviving spouse unless the spouse has consented in writing to another beneficiary, with the consent witnessed by a plan representative or a notary (29 U.S.C. 1055(b)(1)(C) and (c)(2)). A prenuptial agreement does not satisfy that requirement. The Treasury regulation says an agreement entered into before the marriage “does not satisfy the applicable consent requirements” (Treas. Reg. 1.401(a)-20, Q&A-28), and the Second Circuit reached the same result in Hurwitz v. Sher (1992). The spouse can sign a consent after the wedding. IRAs, governmental plans and most church plans are outside section 205.

In a second marriage, a former spouse may still be named on a policy or account. Many states revoke a former spouse’s revocable designation on divorce. Michigan’s statute is MCL 700.2807, and in Sveen v. Melin (2018) the Supreme Court held that applying Minnesota’s similar statute to a designation made before the statute was enacted did not violate the Contracts Clause. Those statutes do not reach ERISA plans (Egelhoff v. Egelhoff, 2001), and a designation signed after the divorce stands. The post-divorce estate planning audit covers those records one by one.

In the hypothetical, Mark’s 401(k) names Lisa and the couple own the house jointly with survivorship. Both pass to Lisa at Mark’s death whatever either will says.

Where the law protects the surviving spouse

State law gives a surviving spouse rights that a plan has to account for, and in a blended family those rights belong to the stepparent. Adult children of the first spouse generally have no comparable claim. Florida’s homestead rules, which protect a minor child and give descendants the remainder, are a narrow exception.

Spouses can waive most of these rights. Florida allows a waiver before or after marriage in a writing signed before two witnesses, with fair disclosure required for a waiver signed after the marriage (F.S. 732.702).

The structure estate attorneys commonly use

A common structure separates the first spouse’s share at the first death and fixes where it goes. That share is held in a trust for the survivor’s lifetime. The survivor receives the income and, when needed, principal for health, education, maintenance and support. At the survivor’s death, what remains passes to the beneficiaries the first spouse named, and the trust’s terms bar the survivor from redirecting it in between. Florida’s default for an undevised homestead, a life estate for the spouse with the remainder to the decedent’s descendants, follows the same logic for one asset.

• Who manages it. A surviving spouse serving as sole trustee decides how much principal to take from a trust whose remainder belongs to the stepchildren. A co-trustee who decides principal payments takes that decision out of the surviving spouse’s hands alone.
• Reports. A yearly report to the remainder beneficiaries lets the children see the trust without having to ask the stepparent.
• The house. A right for the survivor to live in the home, with costs divided the way a life tenant and a remainder beneficiary traditionally divide them: the occupant pays taxes, insurance, interest and ordinary repairs, and the trust bears mortgage principal and major repairs. Florida codifies that allocation for legal life estates at F.S. 738.508; in a trust, the trust’s terms set it. The right also needs an end, such as death, a written release, a long absence, or remarriage if the couple chooses.
• Amendment and withdrawal limits. No withdrawal right for the survivor, no power to appoint the remainder elsewhere, and an express statement that the share cannot be amended after the first death. Kurtz turned on a clause of that kind.

The first spouse’s children wait until the survivor dies, which can take decades when the stepparent is close to their age. Income from a modest trust may not support the survivor, and that puts pressure on principal. Some couples add life insurance on the first spouse payable to that spouse’s children, so the children receive something at the first death and the trust can stay with the survivor. Estate tax elections are outside the version described here.

Where the attorney comes in

Some facts change what a plan can do, and each belongs with an estate attorney before anyone signs: an existing prenuptial or postnuptial agreement, which may already govern what each spouse can leave; a proposed waiver of spousal rights; a Florida homestead; property in a community property state, or acquired while living in one; retirement benefits subject to spousal rights; trust terms that depart from a standard lifetime trust; and any promise the couple wants to make binding, such as a contract not to revoke. Any household can also take its draft to an attorney it chooses before signing.

What to check before anyone signs

An advisor coordinating a remarried couple’s planning can gather both spouses’ documents and every account, policy and deed, with its owner and its recorded beneficiary or title. For each account, policy and deed, list where it goes by its recorded beneficiary or title in each order of death, and which will or trust governs the rest. What those documents do with it, and who could change it, is a question for the couple’s attorney.

Ask both spouses the same question together: if you die first, who decides what your children receive? If the answer is the other spouse, the couple can confirm that is the plan they meant.

How Bancroft shows it

Bancroft records whose child each child is on the household record, and each spouse’s will starts from that spouse’s own children, with an option to treat stepchildren as children. Its order-of-death view shows who receives what if either spouse dies first, at the first death and at the second, and points out where a child is left out or where a beneficiary designation or title works against the plan. In several supported states, the revocable trust can hold a spouse’s share in a lifetime trust of the kind described above. The view describes what the documents do, and the couple decides what to change. More on the blended family planning page.