Finding someone you want to spend the rest of your life with is always a happy occasion. But taking the leap from single to married, especially when children from previous relationships are involved, entails considerations that need to be addressed. The different types of relationships in a blended family could raise issues for your Estate Plan that impact the entire family. For example, how evaluating the bonds within the family plays an important role in determining who gets what and when, particularly when it comes to passing on the business.
To better illustrate this scenario, let’s take a look at the ABC show Modern Family. The show showcases this well-loved TV family’s relationships, and there are many Estate Planning lessons we can learn from the day-to-day issues that arise in dealing with a large yet close-knit extended family such as the Pritchetts. This includes the crucial tools to help ensure that each family member is secured and protected.
Who Inherits the Family Business?
The family patriarch, Jay Pritchett, owns Pritchett’s Closets & Blinds, which helped make him a wealthy man. There’s also an array of businesses that the rest of the family owned throughout the series that need to be considered in planning for their future.
Here are some important aspects to consider:
- Business ownership
There are many ways in which a business can be owned including:
- Sole Proprietorship
- Limited liability company
How a business is owned can have a significant impact on what will happen when the owner or one of the owners dies. Having a legally enforceable document could help smooth the transition.
- Business succession
Being proactive in determining the line of succession in business operations involves having serious discussions with the potential candidates – likely your child or children – and paving the way for that eventuality. In the show, Jay likely chose Claire to succeed him as President of his company as she had more experience in the corporate setting compared to his other adult child, Mitchell, who is a lawyer by profession, while his youngest child, Joe, is still a minor.
- Involvement in the business
It’s not unlikely for two or more siblings to work in the family business. Let’s say Jay wanted Joe to be part of the family business as well. Unless he specified otherwise, Gloria, Claire, Mitchell, and Joe are the beneficiaries of the business upon Jay’s passing. But since Joe is still a minor, it’s a good thing Claire has stepped up to run the company. Estate Planning allows you to provide instructions for when and how the child will join the company, as well as appoint a suitable person to run the company until that time comes.
Stepchildren and multiple generations of blended families
Emotional connections with stepchildren aren’t uncommon. Manny had grown up with his mom and Jay, which had Jay referring to Manny as his son multiple times on the show. However, since Manny is Gloria’s son from her previous marriage, legally speaking, Manny is Jay’s stepson.
By law, a stepchild has no right to inherit from a step parent’s estate. Given that Jay and Manny have formed some kind of father-son bond, if Jay wants Manny to inherit any money or property from estate, say for example, a share of the family business, he will need legally enforceable documents such as a Last Will and Testament or Trust to include Manny as an heir. Discussing his decision to do so with his biological children can also minimize conflict down the line.
When Claire eventually decided to sell the company – during her father’s lifetime – the proceeds would have been distributed according to each shareholder’s stake in the company. For Jay, this could mean a sizeable retirement fund. But what happens to any leftover finances also needs to be planned for.
Considerations for Dividing an Estate
The Pritchetts are a big family, and there are several options on who will inherit from whom. Jay, for example, as the patriarch, needs to consider his immediate family – his wife Gloria, children Claire, Mitchell, and Joe, and stepson Manny. Then, there’s 5 grandchildren – Haley, Alex, Luke, Lily, and Rexford – and lastly, two great-grandchildren – Haley’s kids, Poppy and George.
- Should he leave everything to Gloria?
It’s understandable for a spouse to want to ensure that their surviving spouse will be taken care of. But doing this outright could end up disinheriting Claire and Mitchell – even if it’s not on purpose. If Jay’s estate becomes part of Gloria’s, upon her death, it will pass on to only her children, Manny and Joe.
- Should Claire and Mitchell receive their inheritance now or after Gloria passes?
It’s natural for a parent to want to provide for and ensure his children’s financial stability as well. Since two of his biological children are adults with families of their own, it can make sense for them to receive their inheritance now. But will the remainder be enough to provide for Gloria?
- What about Joe’s inheritance?
Since Joe is still a minor, Gloria will need to continue providing for him, possibly through the inheritance she receives from Jay. However, does Jay need to allot Joe his own share or will he leave it to Gloria to pass on their child’s share from her portion of his estate?
- Will his grandchildren and great-grandchildren inherit from him directly?
It’s likely the kids have formed bonds with their grandparents/great-grandparents. Jay might want to leave them each a token for bringing joy into his life. However, with his children also inheriting from his estate, he could also consider leaving it up to them to pass on a portion of the wealth he has accumulated to the next generation.
A Trust would be beneficial in making sure that Gloria will continue to be provided for as long as she lives, and ensure that the remainder would later go to Claire, Mitchell, Joe, and other beneficiaries of his choosing. It’s also important to consider that some jurisdictions impose an elective share, which is a minimum amount that a surviving spouse is entitled to from an estate. If you are residing in a community property state like Texas, surviving spouses are also entitled to a portion of the assets you’ve accumulated during your marriage.
Now, Gloria has built a career in real estate, which can also mean that she can provide for herself. She could choose to waive her right to the portion of Jay’s estate that she may be entitled to. However, there needs to be proper documentation or risk unraveling Jay’s Estate Plan if it was based on this premise.
Estate Planning is a great way to ensure that your loved ones benefit from your estate as you intend while keeping your hard-earned money protected. Meanwhile, planning for blended families involves thorough considerations to prepare for the many possible circumstances you and your loved ones may face.
The Law Office of Antoinette Bone, PLLC works with families of all shapes and sizes here in Texas to craft a plan that is as unique and modern as you and your family are. Call our office today at (682) 428-3046 to request an appointment.
To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.
Nothing in this message is intended to provide legal advice. This message is for educational purposes only.