As if financial decisions aren’t challenging enough during lifetime, they can sometimes grow even more complicated at death. This is particularly true when relationships emerge later in life and if you’re part of a blended family. Estate planning for blended families is complicated, but it’s not insurmountable. Here’s where to begin and what you need to know.
Where To Begin With Estate Planning For Blended Families
Identify People To Be Named
Every estate plan should begin with a list of individuals you want to be named in your documents, including:
- Individuals to serve as agents during your incapacity or upon your death.
- Individuals whom you wish to receive your assets and possessions.
Outline Bequest Amounts
Next, consider intended or minimum amounts you want each party to receive. Amounts should take into account financial needs, particularly for surviving spouses, young children, and other dependents. Also, remember any required asset flows based upon prenuptial, post-nuptial, or divorce agreements.
Your SageVest financial advisor can help you determine appropriate amounts, relative to financial needs.
Evaluate Goals Relative To Assets
The third step is to determine how realistic your wishes are, relative to your available assets, including who owns them in a blended family. It’s not uncommon for assets to fall short of intended or necessary family goals, resulting in a funding deficiency. In such cases, life insurance might be appropriate.
SageVest prepares planning projections to help evaluate asset needs during lifetime and upon death. We proudly serve as a fee-only fiduciary advisor, allowing us to offer guidance on life insurance without a conflict of interest.
Common Blended Family Estate Planning Techniques And Discussion Topics
Once you have an overview, it’s typically best to engage in a collaborative discussion with your financial advisor and estate planning attorney. These professionals can help guide your decisions, but it helps to be aware of common topics that might arise during discussions, such as:
Marital Trusts Versus Outright Ownership Or Family Trust Structures
Upon the death of the first spouse, there are three common ways that assets might flow for the benefit of a surviving spouse:
Marital Trusts are frequently recommended for blended family estate planning purposes, as they allow assets to be made available to your surviving spouse, while also dictating how any residual funds in the Trust will be distributed upon your spouse’s death. This allows the first decedent to ensure that all remaining funds flow to his or her children, or are split between children and step-children, a key consideration in blended families.
The second most common structure is an outright ownership transfer to the surviving spouse. This is the least complicated approach as no Trusts are involved. However, the ultimate disposition of your assets becomes subject to your spouse’s estate planning decisions. You need to consider the trade off between simplicity versus forfeiting the ability to dictate your final wishes, to include possibly protecting your children’s interests.
Thirdly, you might consider establishing a Family Trust, which holds money in Trust for your surviving spouse and named children, creating a co-mingled pool of assets. This structure might allow children to benefit from assets during your surviving spouse’s lifetime, but it can also raise complications regarding asset use prioritization. Careful planning and thoughtful drafting language are required.
If you and your spouse own your home in the most common ‘Joint With Rights of Survivorship’ structure, the full value of the house will transfer to your spouse upon your death, with the final disposition of the house to be determined by your surviving spouse’s estate planning documents.
Conversely, if you own the house individually, it will transfer as directed in your estate planning documents upon your death, possibly not making the house available for your surviving spouse.
If you’re not comfortable with these possible scenarios, it might be wise to consider ownership changes and leaving the house in Trust for the benefit of your surviving spouse upon your death.
Immediate Bequests To Children
How to support your surviving spouse post-death without slighting your children can be a sensitive topic for blended families. Making an immediate bequest at death to your children can help acknowledge their importance to you. Immediate bequests can be made outright or held in Trust, depending upon your personal wishes.
If any assets are to be held in Trust, we recommend careful consideration of post-death family interactions. In particular, consider how Trust beneficiaries will respond to the Trustee selection(s) you make, and how all parties may interact together, especially during the emotional period of bereavement, and later, as beneficiaries age.
Beneficiary Designation Changes
Changes to your beneficiary designations are frequently necessary. As a reminder, your named beneficiary designations always supersede any plans set forth in your Will or Trust agreements.
Note: Important tax ramifications can result with improper beneficiary designations for qualified retirement accounts. Please consult with your SageVest advisor and your estate planning attorney.
Your personal belongings might be the least valuable assets in your estate, but they often embody significant sentimental value. If your belongings are intermingled with your spouse’s, and you have children or step-children, it’s important to dictate specific bequests, either as part of your estate planning documents or in a supplemental memorandum.
The most successful estate plans incorporate strong documents alongside open communication. This is especially important in blended families. Advance discussions with children, step-children, or other heirs can avoid surprises or, worse, hurt feelings. They also help to ensure successful transition of assets for surviving spouses and remaining family members.
SageVest Wealth Management offers clients experienced and compassionate counsel in how to best navigate financial decisions and discussion during your lifetime and upon death. Please contact us to discuss your family’s finances in greater detail.