For wealth managers advising high-net-worth individuals, a blended family is a red flag. While remarriage represents a new chapter for the client, the complexity it introduces to wealth transfer is fertile ground for litigation. When a client enters a later-life marriage, the potential for conflict between the new spouse and children from a prior marriage ishigh. Here’s how to navigate conflict in blended family wealth transfer.
“A wealthy couple in a subsequent marriage usually recognizes the potential for problems with kids from respective prior marriages,” says Adam R. Gaslowitz, founding partner of Gaslowitz Frankel. “If you add a closely held business to that mix, the potential for conflict intensifies. At some point, you must either transition the business or sell it to provide liquidity necessary to address competing inheritance expectations.”
The Core Conflict in Blended Family Wealth Transfer
Unlike first-marriage estates where sibling rivalry is the primary threat, blended family disputes introduce a hostile outside forces: step-parents and their children whom siblings may believe is unjustly inheriting from their parent.
This scenario is compounded when assets are held in complex structures like trusts or LLCs that delay children’s outright inheritance. When a new spouse acts as trustee, biological children may view them as an immediate target for litigation. For wealth managers, addressing these vulnerabilities may be the client’s last defense.
Related Article: When Family Disputes Threaten Client Wealth: Guidance for Wealth Managers
The Preventive Power of a Litigation Stress-Test
Engaging a fiduciary litigator to “stress-test” the client’s estate plan is a proactive step for defending against potential conflict in blended family wealth transfer.
Ultimately, the goal of a “stress-test” is to determine where an estate plan is susceptible to challenge and mitigate risk with legally robust modifications. This review ensures provisions governing capacity and undue influence are defensible in a courtroom.
“Wealth managers recognize these potential problems earlier than most,” notes Gaslowitz. “Before a client dies and leaves a spouse to deal with the fallout, a litigator should review the plan to identify what could go wrong. We look for the weaknesses that could derail the client’s intent.”
Related Article: When Wealth Managers Need Fiduciary Litigation Expertise
Defending the Fiduciary and Selection Imperative
When a dispute escalates, the fiduciary, often the surviving spouse, requires immediate defense. These cases involve fact-specific allegations of mental incapacity and demands for full accounting. Defending these claims requires a litigator skilled in presenting medical evidence and managing aggressive discovery.
“When a fiduciary faces a challenge driven by family dynamics, our role is to provide objective legal expertise,” says Robert C. Port, an attorney with extensive experience in fiduciary disputes.
The choice of fiduciary is often the central point of failure.
Naming a new spouse as sole trustee over a deceased client’s children almost guarantees litigation. Establishing an independent corporate fiduciary removes the target of the children’s resentment from the situation.
Transparency and Alternative Dispute Resolution
A persistent issue is the tension between a client’s desire for privacy and a fiduciary’s duty of disclosure. Failure to provide information leads to suspicion, which is the primary catalyst for litigation.
Opposing counsel often use a lack of disclosure as leverage for “fishing expeditions.”
“Emotions run high, and it’s imperative to seek objective, level-headed counsel who will maintain a focus on the legal issues,” Port explains. “We guide the fiduciary through their specific disclosure obligations. Strategic management of information is often the most effective tool for deflecting a frivolous lawsuit before it is filed.”
While litigation strength is essential for leverage, the ultimate goal is often Alternative Dispute Resolution (ADR). Mediation and arbitration allow for customized, confidential resolutions that avoid the costs of a public trial.
“The financial and emotional costs of a public trial can be immense,” Gilbert notes. “ADR allows us to resolve complex financial realities outside of a public forum, providing a value-preserving resolution.”The attorneys of Gaslowitz Frankel have years of expertise in handling the complex issues surrounding will, trust, estate, business, and securities disputes. For trusted estate law and fiduciary legal guidance, consult with the attorneys of Gaslowitz Frankel.
