Practical Solutions to 6 Challenging Estate Planning Issues for Blended Families
The definition of a blended family is a social unit formed by the joining of two parents who were previously married, as well as the children from their former marriages. Currently, in the United States blended families outnumber those of traditional nuclear families, and this trend is only going up. This fosters a situation in which extremely careful estate planning is crucial to ensure that each married individual’s desires are carried out. If you do not adequately plan or make changes to your estate plan when you get divorced or remarried then, the results can cause your family to be in a tight situation. For instance, you ex-spouse may end up inheriting your home, your retirement benefits, and your bank accounts upon you passing away without the proper precautions. Let’s take a look at six challenges that often arise and how to properly deal with them.
1. Getting on the Same Page as Your Spouse
One major problem that married couples often have to hurdle is that they have two differing ideas of what their estate plan should look like. However, this can easily be overcome with proper communication. Do not wait until you are sitting down to plan your estate to have a conversation with your spouse about your finances. Instead, a conversation should be had early on in the marriage, if not before getting married, about the goals for your future, current finances, and how each of you wants your assets to be distributed. This conversation is often emotionally charged and difficult to have. However, having it will have tremendous rewards when it comes to the ease of your estate planning in the long run.
2. Ensuring That No One Gets Disinherited
If it is possible, you should sit down with an estate-planning attorney BEFORE getting remarried to discuss your options. However, if you have already said your “I do’s” then it is not too late. The most important thing is to, not do anything, as this will cause the state to decide the distribution of your assets. The largest concern in second marriages is making sure that every spouse’s share of the estate ends up with the desired beneficiary. This means that if each spouse has kids from their previous relationships, then those kids’ inheritance needs to be protected even if the parent is the first spouse to pass away. If you do not handle your estate, then a surviving spouse can amend documents to disinherit the deceased spouse’s kids.
3. Protecting Significant Assets
If one spouse brings a substantial amount of assets into the marriage, then it is a good idea to protect them by preparing a separate property trust. This is best done before the wedding to make sure that those assets end up with the beneficiary chosen by the spouse. You can designate your current spouse as the trust’s beneficiary until they pass away and then designate your children after that. You may also want to have your individual property distributed straight to your kids.
4. Protecting Your Children
Whether or not you decide to establish a separate property trust, you should create a joint trust along with your spouse that contains protections for your kids. For instance, when the first spouse passes away, half of the couple’s assets will be put into an irrevocable trust given to the surviving spouse. The living spouse can maintain their lifestyle with the income that is generated by the trust. However, the principal will be kept for the children of the spouse that passed away.
5. Assigning a Power of Attorney
In the case that you are not able to manage your financial affairs when you’re older, a strong power of attorney will give you the chance to determine a trusted individual to take care of your legal decisions and financial affairs later in life. It is essential that any previous powers of attorney that you designated, such as your ex-spouse, be revoked. Create a new power of attorney and name your children, your new spouse, or another trusted person in your life as an agent.
6. Dealing With Financial Accounts
You may accumulate a large amount of wealth in the form of a life insurance policy and retirement savings later on in life. The beneficiary that you designate on these assets will have control over who it is distributed to, not your trust or will. Many people forget to re-designate their recipients of these assets once they get divorced. It is important that you think about these accounts going hand in hand with your other estate planning. For instance, you may want to give a death benefit to your spouse in the form of a life insurance policy, while letting the remainder of your estate go to your children.
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