Advice on Estate Planning for Blended Families
Becoming part of a blended family offers several benefits, but it is also not without its obstacles. Blended families frequently face a difficult time making emotional as well as financial decisions. While it might seem simple in concept, many people discover that it is difficult to blend everything that they own together.
One of the challenges that blended families face is estate planning and its various complications. If estate planning issues are not properly resolved, disagreements and distrust can arise among family members.
Despite these challenges, the number of blended families in the country is growing at a steady rate. As a result, a growing number of families are learning about how to best perform effective estate planning. The following will take a look at some of the helpful steps that you can follow when estate planning with a blended family.
Decide on Your Estate Planning Goals
Before engaging in any type of estate planning, it is important to decide exactly what your goals are. With blended families, it is important to consider all of the issues that you would have to think about for an ordinary estate plan as well as some additional concerns. Some of the issues that you should consider include:
- Guardianship. If your children are still minors, you will likely be required to consider who will take care of them in case you pass away. There are no hard and fast guidelines to determine who should be appointed as a guardian, but it is important to select a person whom you trust.
- Incapacitation. There is a possibility that sometime in the future, you might be left alive but incapacitated. You should choose one party to be awarded power of attorney and to make medical decisions for you in case you are incapacitated.
- Inheritance. In traditional families, spouses leave all of their assets to the other spouse with the assumptions that any remaining assets will be left to the couple’s children. You might not feel as comfortable with this assumption in a blended family. As a result, you might want to consider directly leaving assets to your children.
Consider What to Blend
After deciding on your estate planning goals, it is a good idea to review your assets to determine what belongs to you, what belongs to your spouse, and what is considered marital or joint property. One of the ways to decide what type of assets to commingle is considering the following factors:
- What you brought into the marriage. Many couples enter a marriage with a significant difference in their assets. While some couples decide to keep their assets, others choose to commingle all of their assets.
- Age. Younger couples might be more inclined to share all of their assets because they often enter into a marriage with more or less the same amount of things.
Consider a Prenuptial Agreement
Prenuptial agreements, as well as other types of marital contracts, can play a valuable role in estate planning. While some people view these documents as unromantic, these contracts afford couples the comfort of knowing that they are protected in case a marriage does not last. These contracts can be particularly valuable if a person owns a business because the company’s value might appreciate greatly over time. These contracts can also be helpful if a couple has children from previous relationships because it makes sure that assets will be left if the marriage does not last to benefit the children.
Consider Creating a Trust
Trusts are a type of estate planning tool that holds assets on behalf of a beneficiary and contains terms stating when assets contained in the trust pass to the beneficiary. Blended families often discover that trusts can be a great advantage in distributing assets. By establishing the potential for a stream of income to beneficiaries, it is possible to make sure that you will both be able to continue your current lifestyle and not lose out financially after your death. Not to mention, trusts are capable of avoiding probate, which means that beneficiaries can receive assets more quickly and pay less in taxes than if assets had been transferred through a will. For blended families, certain types of trusts can provide financial support for surviving spouses and still make sure that something is passed onto children. Consider the following types of trusts:
- Credit shelter trusts. These trusts are capable of providing income to the surviving spouse while making sure that the deceased spouse’s control still exists over how assets transfer to the remaining beneficiaries.
- Qualified terminable interest property trusts. These trusts provide income and if necessary principal to a surviving spouse while preserving the underlying assets and determining how these assets are transferred to beneficiaries.
- Irrevocable life insurance trusts. These trusts hold life insurance policies and provide immediate benefits to the named beneficiary when the insured dies without needing to pass through probate.
After deciding what type of trust to use, you must then select a dependable trustee. This should be someone who will make financial decisions about investing assets and distributing them to your beneficiaries after your death.
Make Sure Your Former Spouse’s Name is Removed From Everything
There are cases in which a first divorce proceeded smoothly and a person would like to leave assets to a former spouse. This, however, is rarely true. As a result, it is critical to thoroughly review your estate plan and remove your former spouse’s name from any estate planning documents or retirement accounts. Retitling is important when bank accounts are involved because the joint owners of an account will receive full control of the account automatically if the other individual passes away.
Consider Tax Consequences
Estate planning for blended families often results in deciding how to balance control of assets against tax consequences. Many families decide to take full advantage of estate and gift tax exemptions, which allow a person to make gifts during his or her lifetime or transfers of assets at death without paying taxes. Federal taxes acknowledge the concept of portability, which lets a surviving spouse use the deceased spousal unused exclusion amount of a deceased spouse. Only a deceased spouse’s unused exclusion amount, however, is capable of being used through portability concepts.
Engage in Meaningful Conversation
Creating new estate planning documents and making sure that beneficiary designations are updated does not mean that everything will continue to run smoothly for your family. This is why it is important to maintain a meaningful and ongoing conversation with all members of your family. Open and honest conversation is one of the factors that will bring all parties to a common ground of agreements with an estate plan.
Life Insurance and Retirement Accounts
Life insurance can be an excellent way to provide for loved ones and surviving family members. Through life insurance, it is possible to leave most of your assets to your spouse as well as to provide for children or other beneficiaries. This is because life insurance, as well as other retirement accounts, are not passed down through your will. Instead, these assets are passed to the beneficiaries who are named on the accounts.
Make Sure to Write a Living Will and Power of Attorney
As part of any estate plan, you should make sure to have a document explaining your wishes if you happen to become terminally ill. Many people decide to name their spouses, but when blended families are involved, the decision who will be the best possible party might change. Whoever is selected should ultimately be someone who is capable of getting along with your family members and can maintain control of their emotions even when making difficult decisions. Understand that naming a poor choice to make health care decisions for you can lead to a great amount of fighting among your surviving loved ones. It is not unheard of that stepparents will cut off access to life support if the other spouse becomes incapacitated. Children can similarly create complications of this nature.
Understand What Will Happen if You do Not do anything
If you fail to make any type of estate plan, the assets that would ordinarily be transferred through your will are likely to be divided by your state’s intestacy laws instead. This means that you will not have any control over how your assets are divided among your surviving spouse, children, and loved ones. Also understand that while wills are a necessary part of estate plans, they likely will not be able to achieve all of your goals if you have a blended family. That is because wills create the possibility that biological children might be cut out of receiving anything from your estate. This is particularly true if you create an “I love you will” in which all of your assets are left to your spouse.
Speak with an Experienced Estate Planning Attorney
Even though the estate planning process is complex, a knowledgeable estate planning lawyer can make it much less so. Contact an experienced estate planning lawyer Melanie Tavare today to schedule a free initial consultation.