Estate Planning With Blended Families
A blended family often brings joy — there are more people to love and be loved by. As your family expands, you will want to provide for each child, whether from the previous or current marriage, and create safeguards to avoid future disagreements and potential unfair treatment.
You can create an estate plan that accounts for each family relationship. Let’s look at the details.
Estate planning
In a blended family, a will probably will not be enough to ensure your biological children receive financial support or a legacy if your current spouse outlives you. Instead, your assets will likely pass directly to that spouse, who may use them as they wish. When the spouse dies, the assets are generally passed to their heirs, which may not include your biological children.
To be sure that you provide for both your spouse and your children, you may want to set up a trust. For example, a marital trust will allow you and your spouse to pass your assets to the surviving spouse while still protecting those assets for your biological children on the spouse’s death. You can also use a trust to pass specific assets directly to your children on your death, with the remainder going to your spouse. A trust also protects your assets for your children should your surviving spouse remarry after your death.
It’s important to review the beneficiary designations in individual retirement accounts or 401(k)s. These designations take precedence over what is written in your will. If your former spouse is still the beneficiary, this could mean that your current spouse and your children do not inherit money you intended for them.
Also review who will make decisions on your behalf should you become incapacitated. Both your financial (or durable) power of attorney and your health care power of attorney should be updated to reflect your new family.
Working together
Your estate plan should not be created without consulting your current spouse; you want to be sure that you are each being fair to your own biological children. Additionally, if you each have children from previous relationships as well as children together, you will want to discuss a strategy for structuring both of your estates to provide support for all the children.
Among the options you might consider is a family trust. This option is particularly useful for families with young children or grandchildren. A family trust might be funded while you are still alive, or it might be funded upon the first spouse’s death, using their assets. The surviving spouse determines the appropriate distribution of assets based on each child’s needs.
You may also want to discuss immediate bequests, which can be assets or items. If you’d like to leave some money outright to children upon your death, or if you want a specific child to inherit a specific item, you and your spouse will want to explore how this will affect the surviving spouse.
Legal and emotional issues
It can be hard to ensure that every person in a blended family is content with the financial arrangement you make. However, you can help smooth the path by telling your loved ones how you intend to provide for them. Be forthright and honest in describing how your assets will be distributed after your death. If you choose to divide assets between your current spouse and your children, communicating these wishes up front can help your spouse prepare for a future financial reality.
It’s also wise to consult with an attorney to help you develop an estate plan. Then plan to revisit your estate plan every few years to be sure that your assets are still divided in a way that makes sense.
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