A new marriage is an exciting event. If the marriage includes blending a family, this can be even more exciting – the more the merrier in some cases, right?
Remarriage and blended families are not as rare as they used to be, with 15% of children living in blended family structures. Yet when blending a family, couples often overlook estate planning, which is problematic. One or each spouse may bring children to the new marriage, as well as have children together. In addition, there may be property and other assets that each spouse has brought to the relationship. The challenge is to provide for a spouse's needs, while ensuring that property and assets will be distributed appropriately.
Factors such as the number of children, the age of the children and the strength of the relationship with the children are important to consider. A non-biological parent may raise the children as their own, but unless formally adopted, for estate planning purposes, the children are not considered the legal children of the non-biological parent. This can complicate an estate if the biological parent dies without a will. Depending on the complexities of the parents’ and stepparents’ assets and estates, there are different paths you can take. Communication and sharing of the goals of each spouse and the family are paramount.
The first inclination might be for the parents of blended families to create wills in which the assets of each spouse are “halved” between the children. But a negative situation can occur where the surviving spouse changes his or her will on the death of the first spouse, cutting the stepchildren out of the estate plan. So for some people, wills are not the answer.
Many blended families set up assets that are to be held in trust. The trusts can take on different characteristics based on the wishes of the grantors (spouses) creating the trusts. One example may be that on the death of the first spouse, the surviving spouse has the right to use income from the assets for support, with the limits set out in the trust. While the surviving spouse has access to assets, they will not be able to change the beneficiaries of the trust. This means that the children cannot be disinherited. Trusts can be modified or terminated while the grantors are alive. After death, the trust can help the family to avoid probate costs and delays.
Another solution is for the spouses to plan for a specific amount of assets or property to be left to the children on the death of the first spouse. The children will not have to wait for the death of the stepparent in order to inherit, giving them a sense of security not just over receiving an inheritance, but over personal memorabilia as well. A very specific list of property relieves the disappointment and tension that can occur without it.
A sometimes-forgotten step is reviewing beneficiary designations on insurance policies or retirement accounts. Many times, the chaos of dealing with transitions such as divorce or remarriage leaves these documents without updated information. Often, both spouses will have accounts and other personal financial information they wish to blend as well, and spending time to update designations can save confusion at the death of one of the spouses. Beneficiary designations will override information in a will if the two documents do not match.
Even basic estate planning can be challenging in a blended family. Having a financial plan in place can help identify the components of your estates. A good estate planning attorney can help guide you through the process. Speak to your advisor about how you can prepare for your new family’s financial future.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
“Finance Made Simple” blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.