5 Estate Planning Tips for Blended Families
When it comes to estate planning, blended families face unique challenges. The dynamic nature of having biological children and stepchildren, ex-partners and different asset ownership structures can lead to a wide range of complexities and additional estate planning considerations.
The following tips can help you navigate the estate planning challenges you face as a blended family.
#1 – Communication is key.
The first step in estate planning for your blended family is to discuss your goals and intentions. A lot of potential family conflict can be avoided if you’re upfront and honest about your wishes for how assets are passed along following your death. For example, if you choose to divide assets between your current spouse and your children, communicating these wishes up front can help your spouse prepare for his or her financial reality following your death.
Communication is also important as you and your spouse take steps to provide for all your loved ones. For example, if you both have children from previous relationships as well as children together, it’s important to discuss a strategy for structuring both your estates to provide support for all children.
#2 – You probably need more than a will.
Wills can be great tools in estate planning but have several limitations. With a blended family, a will probably won’t be enough to support the complexities of your family dynamics. Without additional estate planning documents in place, a will alone may not ensure your biological children receive future financial support if your spouse outlives you. In this situation, your assets will likely pass directly to your spouse. When your spouse then dies, those assets are typically passed along to their heirs, which may not include your biological children.
In order to provide for both your children and your spouse, you’ll want to consider whether implementing a trust to specify your legacy wishes could be the best solution for your family’s unique needs. For example, you may choose to establish a trust that leaves assets to your wife for the rest of her lifetime with the balance passing to your biological children following your wife’s death. Or it may make sense to use a trust to designate specific assets that will pass directly to your children upon your death, such as the proceeds of a life insurance policy, and have the remainder go to your spouse.
Establishing a trust can be an effective, yet complex, estate planning strategy. It’s important to work with a qualified estate planning attorney to ensure your wishes are properly documented.
#3 – Consider the possibility that your spouse could remarry.
Some people decide to pass along their assets to a spouse following their death with the understanding that the spouse will, in turn, pass along those assets to any children. But what happens if your spouse remarries? Under typical state laws, their assets would automatically pass to their new surviving spouse. If this transfer occurs, your children may not receive anything.
If your goals include supporting your loved ones, it’s important to establish an estate plan to ensure your assets are passed along in accordance with your wishes.
#4 – Regularly review your beneficiary designations.
Many people don’t realize that beneficiary designations take precedence over wills. One challenge with beneficiary designations is that you typically only think to create them when you first establish a new account, such as an IRA or a 401k. Once that account is up and running, it can be easy to forget about these designations. That means even if your will was recently updated and your account beneficiaries are decades old, assets in beneficiary-designated accounts will be distributed to the beneficiaries you named decades ago. This can cause problems if your beneficiary is still your former partner.
It’s absolutely vital to review your beneficiaries on a regular basis to ensure they continue to meet your needs and changing family dynamics, especially if you’ve remarried.
#5 – Decide who will make decisions should you become incapacitated.
Estate plans aren’t just for designating how assets are passed along following your death — they also play an important role in protecting you and your loved ones should you become incapacitated and unable to make decisions on your own.
Without the proper documents in place, a major family conflict may arise as your loved ones try to decide who has the authority to make difficult decisions regarding your health and finances. That’s why it’s important to have the following estate planning documents in place.
- Financial power of attorney – A financial power of attorney (also known as a durable power of attorney for finances) is a legal document that designates an individual to act on your behalf should you become incapacitated and unable to make financial decisions on your own.
- Healthcare power of attorney – Similar to a durable power of attorney, a healthcare power of attorney designates an individual to make medical decisions on your behalf should you become incapacitated and unable to do so on your own.
If you become incapacitated without these documents in place, your loved ones will need to go before a probate judge to request authorization to make financial and healthcare-related decisions. Like any court proceeding, the process can take a long time and lead to significant legal expenses. In fact, this process can often cost your estate tens of thousands of dollars. Additionally, probate is matter of public record, which means the court must hold a public hearing to determine a very private matter.
Creating documents that reflect your wishes also ensures the person YOU want has decision-making authority for your assets — not the person a court decided to appoint.
You can save both yourself and your loved ones a lot of time, stress and money by having powers of attorney in place before an unexpected event occurs.
Could you use some help implementing an estate planning strategy for your blended family? Creative Planning is here for you. Our in-house estate planning attorneys work alongside your wealth manager to help ensure you have a solid estate plan that’s in line with your overall financial plan and goals for the future. For help with estate planning for your blended family, please schedule a call with a member of our team.
