5 Estate Planning Tips for the Blended Family

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9th Mar 2016

Second marriages and blended families are common in United States. In fact, an average of 65% of all remarriages involve children from prior marriages and form blended families. While blended families can be wonderful for both the parents and the children, they do present some challenges when it comes to estate planning.

Estate planning already calls for difficult decision-making: Who should receive what assets? What share of the inheritance should someone get? Who should receive the property? How and when should the inheritance be distributed? With blended families, you are responsible for answering all of these questions as they potentially relate to you and your spouse’s children, children from a previous marriage and property and assets you’ve brought into the marriage. Most people want to ensure their spouse is taken care of first and then distribute the remainder of the estate to their children.

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When multiple people are involved, it can get tricky. Each situation is different so you’ll need an estate plan that is specific to your family and your needs. If you don’t take the proper steps to plan your estate, you have no way of guaranteeing that what you want to happen will actually happen. If you have a blended family, it’s important to consider several factors when estate planning.

Family Dynamics

Family dynamics are important in any estate plan and they are specific to you and your family. In blended families, family dynamics take on an increased importance. In order to properly plan, it’s important to understand the individual relationships within the family.

It may be difficult to discuss but you’ll need to consider any issues that exist within the family. Are there any individuals who don’t get along? Could there be any issues between step-siblings, half-siblings and ex-spouses that could surface after you or your spouse passes away? Who is the primary beneficiary or will all things be divided equally?

Again, these are difficult questions to ask but when you consider all dynamics, you can create the most comprehensive estate plan for your situation.

Simple Isn’t Always an Option

I wish I could tell you every estate planning situation is simple and easy, but that’s just not the case. In a “nuclear” family dynamic, a typical estate plan includes a trust for the surviving spouse and then children receive their inheritance after the death of the second parent. However, with a blended family this type of estate plan may not be the best fit.

One example of this is when an older man or woman marries someone significantly younger and the step-parent is close in age to the children. When the spouse dies, if he or she leaves everything to their surviving spouse, it could be a long time before their children receive an inheritance, if at all. For this reason, a more complex plan would be necessary.

Each situation is different and therefore, you will need to develop an estate plan, whether simple or complex, based on your situation.

Use Trusts

Trusts can be really good options for blended families. When you establish a trust, you can provide for your spouse once you are deceased while also ensuring your children will receive an inheritance. A trust allows you to set aside certain benefits for your surviving spouse and other benefits for your children.

If you determine a trust is the right option for your family, you will need to make some important decisions. You will need to determine who the trustee will be, what type of access your surviving spouse and children will have to trust assets and if your surviving spouse or children will have any control over trust assets.

Review Retirement Accounts

It’s also important to consider retirement accounts and the tax impacts as they relate to blended families. From a tax perspective, it typically makes sense to add your spouse as the beneficiary of your retirement fund. If you pass away prior to distribution age, this allows your spouse to roll the money into their retirement accounts and the delay the time until distributions. It’s important to note that when you do this, the surviving spouse can then name his or her own beneficiaries of the account and they can choose not to include or not include step-children.

When you’re determining the best option for your blended family, you may want to consider naming a trust as a beneficiary for your retirement account. This choice does add some complexity as it could impact future tax-deferred growth. Before you make a decision around your retirement account, it’s best to consider the pros and cons of each option.

Start Planning Early

The early stages of planning are critical. One of the best things you can do is start estate planning before it’s too late. When you remarry, take some time to talk with your spouse about your estate planning goals. Discuss what is more important to you and what you would like to happen to your assets when you or your spouse pass away. Now that you are in a new relationship, your goals may have changed so it’s important to discuss them in detail before making any decisions.

Next, review any past or current policies you have in place and who you have named as the beneficiary. Based on your conversation with your spouse, you may need or want to make changes to these beneficiary designations.

Once you’ve made changes to current documents, learn about the tools and techniques that can help you achieve the goals you and your spouse discussed. As we previously mentioned, a trust can be great option for blended families but not all trusts are the same. Find out which trust is best for you based on your current situation, family dynamic and future goals.

Once you have a good idea of the plan you want in place, meet with an estate planning attorney to protect your family. An estate planning attorney will help you determine the best way to plan your estate given your unique situation. They will also talk about special issues that pertain to blended families and how best to plan for these issues. Ultimately, an estate planning lawyer will help put your plan into place and protect you, your family and your assets

To learn more about estate planning for your family, call me directly at 1-714-385-0044 to schedule a consultation.

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