It is worth knowing that the number of marriages constituted by previously married couples is on the increase. Statistics reveal that about 50% of US couples are remarried, and about 50% of US kids below the age of 13 are living in a blended family.
As large as this percentage is, blended families pose a major challenge to estate planning as the ex-spouse, children, and former in-laws brought into the new marriage would have to be provided for, as well as those in the new relationship. When one finds oneself in such a situation, one begins to ask, “how exactly will my property be distributed when I die?”
The greatest challenge with blended families is how to ensure that the surviving spouse and kids will be ideally cared for when one spouse passes on, while also making the children from the previous marriage beneficiaries of the couple’s estate. According to Van Pate, an RBC Wealth Management consultant, the best way to go about this is drawing a flowchart showing the ultimate path of both partners’ assets, regardless of who dies first. By so doing, they can determine the level of authority the surviving spouse will exercise on the assets before being passed down to the kids. With that in mind, you are presented with some tips below to help with your blended families’ estate planning.
1. Trusts and wills
These assets are highly recommended for blended families desiring to clearly spell out the distribution of their assets. One should note that these two documents are not mutually exclusive. The assets not transferred into the trust have to be addressed in a will. Do hire an estate planning lawyer to help you in this aspect.
For a blended family in which a man with kids remarries and desires his assets to ultimately pass to the children, he can create a living trust which would benefit the new spouse during his lifetime, and then the trust assets passing down to the kids. But the problem with this seemingly simple ideology arises in naming a successor trustee. When the husband names the new spouse as a successor trustee, and she is in conflict with the husband’s kids from the previous marriage, she may use up the assets and cause depreciation so that very little or nothing is left for the kids to inherit. The reverse is also possible when the husband names his child as the successor trustee. The solution to this according to Van Pate is to designate a neutral third party as a successor trustee.
Pate also suggested that an alternative strategy be implemented in blended homes in which the children will receive some financial support immediately their parent pass on, without having to wait for the death of their step-parent.
2. Designating beneficiaries
People often underestimate the power of a name when it comes to inheritance. Regardless of what your will says, your IRA account will go to whosoever you have named as a beneficiary in that IRA account. Some of your assets require attaching a beneficiary to it, and when, for instance, you name your first spouse as the beneficiary, you may forget or ignore removing it after your second marriage. Even when you name your new spouse or children as beneficiaries in the will, that particular asset which you’ve designated to your ex will surely go to them.
Another mistake one can make is naming primary and secondary beneficiaries. When no contingencies occur — such as the primary beneficiary dying at the same time as the testator — then there is no hope of anything reaching the hands of the secondary beneficiaries. If you want every member of your blended family to benefit from the estate, then each should be named as primary beneficiaries with the portion of the estate going to each beneficiary clearly stated.
3. Your health matters
In blended families, due to the larger number of parties concerned, there is need to have a family discussion about incapacitation and who among all of them would handle the affairs of the parent when he or she becomes incapacitated. Hence, a living will or health care directive should be established. Estate planning lawyers are also available to guide you on this.
4. Drawing the right estate plan before tying the knot... again!
Having a financial discussion and agreement with your new lover before walking down the isle gives the both of you a good footing and understanding prior to the marriage, but nothing beats a documented estate plan. Before going into the marriage, both parties should agree on how the assets would be distributed down to each partner’s kids, and this agreement should be put on paper. If you desire to separately own and keep the assets which each person is bringing into the marriage, then this should be penned down. The reason for this kind of estate planning is that once the assets of both spouses are blended into one account, then each would have a claim to it, and then the financial welfare of the other spouse’s children may be compromised when their parent dies.
5. Communication is key
Effective and continuous communication is key to every blended family. Each member should know where they stand in the family and what is expected of them. Surprises may still occur out of the blues almost definitely, but planning for each possible occurrence beforehand and communicating this down to the family during a blended family meeting or dinner will go a long way in establishing continuous harmony and togetherness in the blended home. Communication eases the tension, communication brings about unity, communication is estate planning!