As of 2015, about 16% of Americans were living in a blended family. (That’s about 54 million people!). From The Brady Bunch to Modern Family, the concept of blended families is certainly nothing new. Navigating estate planning can be complex for any family, but blended families face unique challenges that require careful consideration. Between multiple parental figures and children from previous relationships, crafting an estate plan that’s fair and protects all family members is no easy feat. Let’s explore how blended families can effectively manage their assets, protect their loved ones, and ensure their final wishes are honored.
What exactly is a blended family?
A blended family is a family unit where two people with children from previous marriages or relationships enter into a new marriage or partnership together. The couple may also have children of their own from the current relationship. Think: step-parents, step-siblings, etc.
The dynamics of blended families can be complex, involving multiple parental figures, siblings from different biological backgrounds, and potentially different custodial arrangements. It’s important for blended families to start estate planning as early as possible to ensure that your assets are distributed according to your wishes.
How is estate planning different for blended families?
With a unique family structure, it’s inevitable for blended families to experience unique estate planning challenges due to the complex dynamics and relationships involved. Let’s take a look at some important estate planning considerations for blended families:
Asset distribution
Determining how your assets will be distributed can be more complex in blended families. Balancing out asset distribution for biological children, second spouses, and step-kids is important, especially if financial resources are unevenly distributed among family members. Without an estate plan, your state’s default laws will dictate how your assets are distributed among your surviving family members. For blended families, in particular, this can lead to unintended outcomes.
For example, imagine a family in which a person (let’s call him John) remarries (let’s call her Susan). John has children from a previous marriage (Ashley and Chad). Susan also has two kids (Brittany and Matt), who are now John’s stepkids. John is very close with his stepkids, whom he practically raised. John owns a house and has accumulated savings over the years. If John passes away without a will, in many states, intestate succession laws determine how his assets will be distributed. Typically, a surviving spouse (a.k.a. Susan) and biological children (Ashley and Chad) are considered his heirs. However, stepchildren (Brittany and Matt) generally do not have inheritance rights under intestate succession laws unless legally adopted by the deceased individual.
As a result, stepchildren may not receive any inheritance, even if they have a close relationship with the deceased. Want to avoid this kind of outcome? Make sure you set up an estate plan! (And so should John!).
Beneficiary designations
Remember to review and update beneficiary designations on accounts such as life insurance policies, retirement plans, and bank accounts to ensure they reflect your current wishes. This is crucial to avoid unintended consequences, such as assets passing to ex-spouses or other unintended family members. For example, let’s say you list out your stepchild, Joe, as your beneficiary on your life insurance, but you get divorced and don’t speak to him anymore. You may want to consider changing this.
Family dynamics
Consider the emotional and practical consequences of estate planning decisions on all family members involved, especially if there are different expectations regarding inheritance or financial support. It’s never too early to discuss your estate plan with your family in order to avoid future conflicts between surviving family members.
Without a will or other estate planning documents, your assets may not be distributed according to your wishes. Additionally, certain family members, particularly stepchildren, may not be adequately provided for. This is exactly why it’s crucial for blended families to consider all available estate planning options and implement a plan that best suits your family’s needs.
What are some estate planning options for blended families?
All families can benefit from a comprehensive estate plan, but it’s particularly beneficial for blended families to consider several estate planning options. This ensures that all family members are properly provided for and that your wishes are carried out effectively. Let’s dive into some estate planning options for blended families to consider:
- Last Will: Drafting a will is essential to specify how you want your assets distributed upon your passing. In a blended family, you can designate specific bequests (i.e., gifts) to biological children, stepchildren, and your spouse or partner. A will allows you to clarify your intentions and ensure your assets are distributed according to your wishes.
- Trusts: Trusts can be particularly beneficial for blended families to manage and distribute assets without the need for probate. You can create trusts that specify how and when assets are distributed to beneficiaries, such as setting up separate trusts for biological children and stepchildren. Trusts can also provide protection for minor children or children with special needs.
- Life Insurance: Life insurance policies can be used to provide financial support for your spouse, children, or stepchildren in the event of your death. Designating beneficiaries on life insurance policies allows you to provide for specific individuals without the need for probate.
- Joint Ownership: Consider joint ownership of assets with the right of survivorship, such as joint bank accounts or real estate. Joint ownership can simplify the transfer of assets to a surviving spouse or partner, but should be carefully considered to ensure it aligns with your overall estate plan.
By utilizing these estate planning options, you can create an estate plan that protects your loved ones and ensures your wishes are carried out according to your preferences.
How can a prenup factor into estate planning for blended families?
You’ve probably considered getting a prenup to prepare for the possibility of a divorce, but did you know that a prenup can also help you accomplish your estate planning goals? A prenup can help supplement other estate planning documents on how assets will be divided in the event of divorce or death, which is particularly important for blended families. Prenups can protect the interests of both spouses and their respective children from previous relationships.
Asset protection
A prenup can outline the division of assets acquired before and during the marriage. This is particularly important in blended families, where individuals may want to protect assets for their biological children from previous relationships.
For instance, consider John, who is about to marry Susan (his second marriage). He wants to ensure that his assets are protected for his children from his previous marriage, Ashley and Chad, in the event of a divorce from Susan or his death. To achieve this, John gets a prenup. This agreement ensures that most, if not all, of his assets remain with him in the event of a divorce from Susan and that his estate planning documents will dictate the distribution of his assets should he pass away while still married to her.
Inheriting separate property from a deceased spouse
Let’s say John wants to ensure his second wife, Susan, doesn’t inherit any of his Separate Property if he dies. He wants to make sure it goes to his biological children. (However, he has still parsed out a section in his will to leave something to his stepkids). He can do this with a prenup.
Prenups can specify inheritance rights between spouses. This makes sure that assets intended for biological children or other heirs are protected and not unintentionally commingled with marital assets.
How to achieve this? Well, one way is to include a “death clause” in your prenup to help achieve your estate planning goals. This type of clause states that in the event you or your spouse pass away while married, the terms of your prenup will remain in effect as though you were alive (i.e., Separate Property will remain Separate). If one spouse passes away while still married, all Separate Property and the liabilities associated with it will become part of the deceased spouse’s estate.
Including this clause would mean that both spouses waive any rights they would typically have to inherit from each other’s estates as surviving spouses. However, both spouses would still be able to inherit any property gifted by the other spouse through a last will or other estate planning documents.
Debt protection
A prenup can address how debts incurred before and during the marriage will be handled. This can protect spouses from assuming responsibility for each other’s pre-existing debts, which can be particularly important in blended families with complex financial histories.
The bottom line on estate planning for blended families
Blended families should prioritize estate planning to ensure all family members are adequately provided for. Implementing these estate planning strategies can help you do just that. You can create a comprehensive and effective estate plan by addressing the unique dynamics of blended families through options like wills, trusts, and prenuptial agreements. This not only gives your loved ones peace of mind but also ensures that your wishes are carried out well into the future.
0 Comments