Matching your estate planning strategies to your family structure: What to know

They’re the ones who gather with you for holidays, who share your precious moments and memories, who have stood by your side in good times and bad. Whether through blood, marriage, adoption, or longtime relationships, to you, they are family.

Legally speaking, it’s not so simple, especially when it comes to estate planning. And this is a concern for the growing number of families that are blended through multiple marriages, partnerships, or adoptions; that include children of unmarried parents; or that are headed by or include single parents, same-sex couples, or late-start families.

That’s why, when it’s time to prepare an estate plan, the conversation should start with the answers to this question: What does family mean to you? Here, Jonna Thomas, vice president, lead fiduciary advisory specialist for Wells Fargo Wealth and Investment Management, offers important ideas that diverse families — and all families — should keep in mind when it comes to estate planning.

First, define who you consider family

The first and most important thing to do when making your estate plan is to understand the family definitions used in your trust or estate documents. If those documents’ definitions don’t fit your definitions of family, you may want to revise the documents. This means identifying your family members and defining your relationships to them on paper.

Without this specificity, legal defaults — which vary from state to state — will apply. And they may not align with your wishes.

Thomas says one common mistake occurs when grandparents in blended families do not define what “grandchildren” means: Grandparents may regard their son’s or daughter’s stepchildren as their own grandchildren but forget to name them as such in their estate documents, assuming that the relationship is known.

“Laws regarding parentage presumptions don’t necessarily apply from the grandparents’ perspective,” Thomas says. “Grandchildren they regard as their own — whether biologically related or not — are not necessarily grandchildren under law. It doesn’t matter if they have hundreds of holiday cards that say ‘grandparent’ — the default state law may not recognize the relationship, and they need to plan for that.”

Another circumstance that Thomas says is becoming more common are children conceived after a genetic parent’s death, via assisted reproduction using preserved genetic material. “Some states may exclude these children from the predeceased parent’s family bloodline, absent compliance with strict legal procedures,” Thomas says, “so ensuring your wishes are spelled out in your estate documents is important.”

“In the end, the law allows the trust maker to define the family, and they can do that however they want,” Thomas says. “Absent planning, state law will define family and determine beneficiaries.”

Make sure language is consistent

“When someone prepares an estate plan and specifically names who they regard as children and grandchildren, they will be regarded as such as long as the language is consistent in the documents,” says Thomas. “There is more of a challenge around children born after the document is executed.”

As an example, most plans include a section about distribution of assets that usually includes a phrase along the lines of:

“Upon my death, these assets will go to XX, and, should XX predecease me, to his/her ‘issue.’”

The question to ask yourself and your attorney is this: Will this language include who you want it to include based on applicable state laws?

“The assumption is that ‘issue’ means biological children, but that’s not the case in most states at this point,” Thomas says. “State to state, the definition of parentage varies. It can include adopted children or other non-biological children you have raised, or it may not include the children you’ve raised.”

California’s laws, for example, strongly favor relationships over biology. Under Family Code Section 7600, most definitions of parentage are biology neutral and most parentage presumptions are marriage neutral, according to Thomas.

Some people may wish for their estate plans to recognize only children or grandchildren of certain relationships, even if they have others who are part of the family bloodline. In the case they wish to make intentional exclusions (for example, children conceived outside of marriage), these wishes should be discussed during estate planning to ensure the document’s language addresses all the concerns accurately.

Consider what you may not know

Many families are candid about their plans for wealth transfer; however, there are times that family secrets are revealed when the patriarch or matriarch passes away. Thomas recalls a situation encountered by some adult children whose father passed away with no estate plan and whose grandparents had not clearly defined their beneficiaries.

In this case, Thomas recalls, “Upon their father’s death, the children were surprised to discover that their father had a second family,” she says. “While the father did no estate planning, he was an heir to his parents’ wealth, and their estate plan did not specify ‘known’ grandchildren as beneficiaries. When the children from this second family claimed rights as beneficiaries upon the father’s death, the grandparents’ family corporation was threatened, and they nearly had to dissolve it.”

“That’s one reason why it’s so important, even if you don’t know for sure whether the family has a nontraditional structure, to clearly define in legal documents who you consider family.”

Remember: Things are always evolving

Family structures can range from traditional to diverse and also evolve over time. In addition, changes to estate laws can greatly affect your estate plan. To help keep your strategy aligned with your needs and prevent problems from arising in the future, review your estate plan every year or at least when your family or vision changes.

As you consult with your tax and legal advisors to determine the appropriate wealth transfer strategy, consider including your wealth advisors to help you create a road map.