Incorporating Family Dynamics into Estate Planning

According to the U.S. Census Bureau, in 2021 there were 1.2 million same-sex households. Additionally, according to the Current Population Survey, the living arrangements of children in the U.S. are changing, with the number of children living with two parents down from approximately 85% in the 1960s to 70%. Lastly, according to an analysis of census data from 1971-2021, the number of people living in multigenerational family households quadrupled during that time period, reaching 59.7 million in March 2021. It is clear that the families of today do not look like the families of the past.

Everyone wants to take care of their family and estate planning is a huge piece of that. Estate planning is generally described as the conservation and distribution of property, assets and wealth in the manner that most efficiently and effectively accomplishes one’s goals. Estate planning is inherently a goal-oriented activity — using tools, techniques and actions to achieve certain goals. Naturally, questions often arise around non-traditional family estate planning. How should they handle estate planning? What are their unique challenges? What aspects of an estate plan should they focus on? However, more often than not, a nontraditional family has the same goals and wishes for estate planning as a traditional family: to protect and distribute their assets in the way they want to. So, while estate planning for nontraditional families comes with a few unique issues, it follows the same path of stating the family’s goals and wishes, making a plan to achieve those goals, and then taking action toward those goals.

It is worth noting that federal and state estate laws are generally based on the traditional family structure rather than the wide range of nontraditional family structures. This means that traditional families are more likely to benefit from and be protected by federal and state laws. For instance, a state may have a law that leaves all of a spouse’s property to their surviving spouse if they die without a will. However, a nonspouse partner may not be afforded those same benefits and protections under state or federal law. Additionally, nonmarried partners may not take advantage of the unlimited gift tax deduction that is provided to spouses.

While estate planning for nontraditional families requires thoughtful and creative planning, there seem to be only a few differences from traditional family estate planning:

• Nontraditional families may not be provided the same tax, gift and estate benefits and therefore must be more meticulous and careful when making material financial decisions. For example, the transfer of property between nonmarried partners may be a taxable event and should be carefully considered before being carried out.
• Nontraditional families must be more intentional to make sure their wishes are clearly stated and their plan effectively accomplishes their goals, as they may not have the same legal protections built into state and federal laws. For example, nontraditional families may need to specifically name their beneficiaries by legal name rather than a generic class description such as “my children” because even though you may consider someone your child, the law may not.
• Nontraditional families may have more relationships and more goals for estate planning than traditional families. Therefore, some goals may have to be prioritized over others. For example, a blended second family may have numerous beneficiaries to whom they wish to provide some benefit, so the value of the benefit to each beneficiary may need to be reduced in order to be spread around evenly.

So, while nontraditional families face unique challenges when it comes to estate planning, just like traditional families, they can create a plan that can accomplish their goals. And whether it’s for a traditional or nontraditional family, estate planning can be done by taking a few small but meaningful actions (with the help of legal, financial and tax advisors) to implement their estate plan. Some steps include reviewing and updating beneficiary designations on retirement accounts and life insurance policies, reviewing how assets such as real estate and vehicles are titled, having a durable power of attorney for someone to make decisions for you if you become incapacitated, and executing a will that names a guardian for minors if necessary and directs how and to whom property and assets will pass upon the death of the individual.

To review, non-traditional family estate planning can meet all of their goals and wishes in much the same way a traditional family would. Of course, a nontraditional family’s unique circumstances and concerns will require careful planning with the help of trusted advisors.