Navigating The Complex World Of Step Families
These days, many families include children, stepchildren, former spouses, and in-laws. The number of remarriages has been steadily rising, so advance wealth planning with clear goals is advised.
You want to take care of your spouse and your children, but letting them work it out after you’re gone is a recipe for disaster. Fortunately, estate planning takes into account your unique family situation and can alleviate most of your concerns.
Good communication is key. Have an honest conversation with your new spouse about your existing finances, goals for the future and how you expect your assets to be distributed. Such discussions are difficult and can be emotionally charged but will reap rewards in the long run. If your children are adults, you may want to include them in these talks so everyone knows what to expect.
Ensure that each spouse’s share of the estate ultimately ends up with his or her desired beneficiary. In this way, inheritances are protected for each spouse’s children from another relationship, no matter which parent is the first spouse to die. Traditional estate planning distributes an estate first to the spouse and then the children. But after the first spouse dies, the surviving spouse can amend the documents to disinherit whomever she or he wishes — including the deceased spouse’s heirs.
One way to deal with this is to prepare a separate property trust before you get married to ensure your assets end up with your chosen beneficiaries. You may make your current spouse the beneficiary of the trust until his or her death and then name your children, or you may have your separate property distributed directly to your children.
You also should establish a joint trust with your spouse with protection for the children. This places half of your assets into an irrevocable trust for the benefit of the surviving spouse, who is able to live on the income generated and yet preserve the principal for the children.
Other documents to think about:
- Power of attorney for financial affairs — This gives you the opportunity to name a trusted individual, most likely your spouse or one of your children, to manage your financial affairs and legal decisions during your life if you are not able to.
- Advance health care directive — You name someone you trust to make decisions about your health care when you are no longer capable of doing it yourself. It’s helpful to medical professionals if there’s an emergency, plus it gives you an opportunity to discuss your feelings about end-of-life care, organ donation and burial arrangements with your new spouse.
- Beneficiary forms — If you have some of your wealth in life insurance policies and retirement accounts, the beneficiary designations, not your will or trust, will control to whom these monies are distributed. One way to avoid a potential problem is to name each beneficiary as primary and designate the percentage of the asset each will receive.
And other things to consider:
- You may want to provide a death benefit through a life insurance plan for your spouse, while allowing the rest of your estate to pass to your children. You want your children to benefit from your assets without court intervention.
- Now is the time to look over all your financial assets — including that little-used account at a credit union or old 401(k) plan from a job you left long ago. Make changes, transferring accounts to your new spouse and/or children.
- A will is still needed to ensure that assets not titled in a trust are transferred according to your wishes.
Every blended family is different, and each presents its own set of challenges. Designing a plan that keeps all parties satisfied is key, and agreeing on a course of action is bliss. Communication is probably the secret weapon for maintaining harmony — especially in blended families.