Blended families are becoming increasingly common in our society. Remarried couples join together with the children from previous relationships and create a new family unit. Subsequent marriages usually happen after a divorce, but they can also occur after the death of a former spouse.
First-time married couples can also create blended families if one or both partners have children from other relationships. Likewise, unmarried couples can also form blended families under the same circumstances.
Children from a previous marriage (or relationship) do not necessarily have to be living with the parent in order to constitute a blended family. For example, if your adult children live on their own, but you are remarried (or cohabitating) to a new partner, they are still part of your family.
Higher divorce rates and lower rates of marriage mean that the number of blended families is also on the rise. Divorce is not only common in first marriages, but it can also occur in second or third marriages.
If a couple has several children from different relationships, you can get an idea of how complex a family structure can become. And if any of those previous relationships ended on less than peaceful terms, there might be the threat of an ex-partner claiming rights to your property. Consequently, the protection of those assets becomes all the more important.
With the ever-changing structure of the family unit, estate planning can present a vast array of challenges. Issues can arise between spouses or with children in the family. In addition, they can also happen after one spouse dies where disagreements occur between the surviving spouse and the remaining children. Most notably of these issues is favoritism over a parent’s own biological children and the potential of the other children to be excluded from any inheritance. Another problem is when a child has to wait for the death of their parent’s spouse before being able to receive their inheritance.
So what are some effective estate planning strategies you can take on for your blended family’s situation?
If you want to avoid future complications, the first step is to have a discussion with members of your family. It may not be a comfortable topic to discuss, especially if you suspect that there will be disagreements. But this is your chance to address any differences of opinion and look for ways to work those out.
You’ll want to have this conversation before filing any paperwork and preferably before consulting an attorney. If you start to draft legal documents while there are still areas of disagreement, you may encounter legal disputes down the road.
During your conversations, you’ll want to discuss things like guardianship, long-term goals, finances, and other contractual obligations.
Take the time to review and update your beneficiaries regularly. It is very easy to forget about retirement accounts from previous employers and life insurance policies you purchased in the past.
Your ex-spouse, or anyone else who is no longer part of your life, may still be listed as a primary beneficiary. In some instances, there may be contractual obligations in which you may not be able to remove someone as a beneficiary. It is best to consult with an attorney before making any changes to your beneficiaries. But the message here is to carefully review the names of your recipients on all of your plans.
It is very common for second marriages to have imbalanced levels of wealth between spouses – meaning that one spouse owns more than the other. However, this inequality can also apply to first marriages, especially if the couple is marrying later in life and one or both partners accumulated substantial wealth during their single life.
Think about what you had before your marriage and what you are bringing as community property. Also, consider if you are leaving property separately for your own children from a previous relationship. The key takeaway here is to evaluate everything you own and determine what your intentions are with your property. To put it simply, you will have to answer, “what’s mine and what’s ours?”
Estate planning strategies can vary in complexity, from a standard will to more sophisticated types of living trusts. What may work for you may not work for another family. However, generally speaking, you may need to create a living trust, a will, or a combination of the two. In addition, there will be other specific documents, such as a power of attorney, that may accompany your estate plan.
If you own a lot in assets and personal property, the best strategy may be to use both a living trust and a will. A will can be used for the distribution of smaller items such as family heirlooms and other property that you’ll want to keep separate from a trust.
For property and other valuable assets, you’ll want to create a living trust and transfer ownership of those assets to the trust where they will be held for the distribution of beneficiaries. You can make a trust to be revocable or irrevocable.
A revocable trust allows you to make changes to the trust as long as the grantor (the person who created the trust) is still living. An irrevocable trust, on the other hand, cannot be changed by the grantor, regardless if he or she is living or not. It is important to note that revocable trusts become irrevocable after the death of the grantor, though there may be exceptions.
Last but certainly not least, consider the issue of taxes. The benefit in estate planning is that there are many strategies that decrease your estate tax burden and let you keep more of what you have. On the other hand, a poorly drafted estate plan can also end up costing you more than necessary.
Many individuals feel confident enough to be able to draft their own estate planning documents without an attorney. You may think that doing your own estate planning will save you money but in the end, it could end up costing you more.
Each family is unique and blended families are certainly no exception.
If you are thinking about planning your future goals with your new family in mind, consider speaking with an estate planning attorney to offer guidance so you can make the most out of your wealth and life planning goals.