Planning for Step-Children

If you have married someone and your spouse has children from a different relationship, those are your step-children. Even if you have helped raise the child from a very young age, unless you have adopted the child, they would not be considered your child for inheritance purposes. The implication of this can be significant.

Here’s an example: When Harry met Sally, Sally had a newborn child, Betty. Harry married Sally shortly thereafter. They raised Betty together, but Harry never adopted her. Sally died while Betty was in college, leaving Harry all her assets. Unfortunately, Harry didn’t have an estate plan. As a result, when Harry died the following year, he was intestate. According to the laws of the state where Harry lived when he died, since his parents and spouse had predeceased him, his estate would go to his siblings, with whom he and Betty had only strained relationships. Betty really needed the money to pay for college and to get a good start in life. But now she’d be penniless and would feel abandoned by her father.

Harry and Sally could have avoided this situation. Of course, Harry could have adopted Betty when she was young. However, that may not have been possible or desirable for numerous reasons. Also, if Harry didn’t have an estate plan, even if he had adopted Betty, she would have inherited the assets outright.

If Harry had left his estate to Betty in a trust, this would have solved numerous problems. First, his assets would have gone to Betty whether or not he had adopted her. Second, he could determine how Betty should get the assets. For example, Harry could have provided for Betty to receive the assets in trust instead of outright. If Betty had creditor issues, Harry could have left the assets in a trust which would have protected the assets from her creditors. If Betty were too immature to manage the assets, Harry could have left the assets in a trust with someone else named as trustee to manage the assets until she reached a suitable age. The trustee could provide Betty what she needed from the assets in the trust and then turn the balance over to her when she achieved the age set by Harry.

Like Cinderella, step-children often get the short end of the stick. If you intend to leave assets to your step-child, you need to plan to do so. The laws of intestacy will not take care of your step-child. You have to affirmatively provide for the step-child in your estate plan. Otherwise, like Cinderella, your step-child would get nothing.

The next article in this series on planning for children will examine the importance of planning for special needs children.