Estate Planning for a Blended Family

Estate planning for a blended family—in which couples have children from previous relationships and possibly children together—poses unique challenges and risks, including inadvertently leaving assets to an ex-spouse and sowing dissension among surviving family members.

Fortunately, taking a proactive approach can help avoid such pitfalls.

First and foremost, think about where you want your assets to go—and consider how your state's marital property laws could complicate your plan. For example, spouses often have a presumed right to certain assets. If you prefer they go to your kids instead, you'll need to take special measures.

It can be helpful for you and your partner to list your individual and collective assets and to whom you want them to pass. For instance, even if your home is not jointly owned, you may wish for your surviving spouse to retain the right to live in it until their death before it transfers to your children from a previous relationship.

Once you have a plan for your assets, work with an estate attorney—ideally one who specializes in blended families—to determine the best way to transfer them to your heirs, including:

• Beneficiary designations: Assets in retirement accounts such as 401(k)s and IRAs, as well as life insurance payouts, typically go to your beneficiaries, whose designation supersedes any conflicting instructions in your last will and testament. However, if you live in a community property state—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin—your spouse may need to waive their legal right if you wish to designate to another recipient more than 50% of the community property funds in your retirement accounts.

• Lifetime gifting: You can give away a certain amount tax-free to each of your children or grandchildren every year. (In 2025, the limit is $38,000 per couple.) This strategy is often employed by couples with significant age differences, since it allows you to support children from a prior relationship who may not have access to their full inheritance until the death of the new spouse.
• Pay on death designations: Similar to beneficiary designations, certain bank accounts allow you to indicate to whom the funds in the account should go. These designations supersede your will and are a relatively easy way to ensure assets pass to the intended heir. (A spousal waiver may be required on shared accounts held in community property states.)
• Trusts: Several strategies can be especially suitable for a blended family, including:
  • Marital trust: This type of irrevocable trust supports the surviving spouse, who is the sole beneficiary and has full access to the trust's assets. When the first spouse dies, designated assets transfer to the trust tax-free using the unlimited marital deduction and become a part of the survivor's estate. Upon the surviving spouse's death, remaining trust assets go to any beneficiaries of their choosing.
  • Bypass trust: Also known as a family trust, this type of irrevocable trust typically protects the first spouse's children and is often used in conjunction with a marital trust as part of a two-step strategy to minimize estate taxes. In the initial step, the bypass trust is funded at the first spouse's death with an amount up to their available estate tax exemption—up to $13.99 million in 2025—with anything over this amount going into the marital trust tax-free. In the following step—triggered by the second spouse's death—the principal and accumulated gains of the bypass trust pass to the first spouse's designated beneficiaries, either directly or by remaining in the trust for their benefit. In both cases, the assets aren't subject to estate taxes but are subject to capital gains taxes upon sale and do not receive a step-up in cost basis.
  • Qualified terminable interest property (QTIP) trust: This irrevocable trust is an alternative to a marital trust and is particularly useful when a grantor has assets with high appreciation potential. A QTIP trust provides income to a surviving spouse for life but restricts them from accessing the principal, preserving it for the eventual beneficiaries. However, it resides within the surviving spouse's estate—so the assets receive a step-up in cost basis upon their death (though their estate may be subject to estate taxes).

A qualified estate-planning attorney can help you determine which trust strategy is most appropriate for your goals.

Family relationships can be tricky, so think carefully about how your choice of executors and trustees might play out. For example, if your current spouse and an adult child from a previous marriage don't see eye to eye, it might be awkward for your spouse to have to ask your child, as trustee, for disbursements. Appointing a professional trustee can help avoid such interpersonal conflicts.

Estate planning is more than figuring out who gets what. You also need to name a health care proxy to make medical decisions—and a power of attorney to make financial decisions—in case of incapacity. Make sure you communicate your designations to your loved ones in advance to help avoid conflict among family members down the road.

In a similar vein, discuss your estate plan with all affected parties in order to manage their expectations and avoid hurt feelings—to say nothing of potential lawsuits. For example, a child who was once told by a single divorced parent that they'd inherit everything may reasonably assume that's still the case, even though their parent may have remarried and changed their will.

Of course, every family is different and how much you decide to share will depend on your relationship with your heirs—and their relationships with one another. A legacy consultant who specializes in family dynamics can help you create an estate plan that accounts for individual personalities, sensitivities, and other factors to ensure that all heirs feel fairly treated.