Estate Planning for Blended Families: It All Starts with Communication

My clients, and especially my thriving retirees and family stewards, are accustomed to hearing me remind them of the importance of estate planning: having properly designed wills or trusts; keeping their beneficiary designations up-to-date; periodically reviewing all estate planning documents to ensure they remain current; and everything else that goes along with having a solid estate plan.

All these things become even more important in the case of blended families, whether the new family is formed as a result of divorce and remarriage, or the death of one or both of the new couple’s prior spouses. And, as with most aspects of financial planning, everything depends on good communication, both between the new spouses and with a professional financial planner or legal advisor.

For new blended families including children from more than one marriage, it’s important for the spouses to communicate with each other their expectations for assets to be left to the children. For example, if trusts were created for college expenses by one of the spouses before remarrying, the new spouse needs to know that these assets will likely be maintained as nonmarital property by the spouse who created the trust. On the other hand, the new spouses may want to formulate a clear agreement about any financial support or inheritance that will be provided by each to their respective stepchildren.

In some cases, a partner may come to the new marriage with contractual obligations to an ex-spouse that must be taken into consideration; these should be clearly communicated and understood by the new spouse. Also, for couples residing in a community property state, it’s important to stipulate assets that will remain separate (nonmarital) property. Typically, this can include assets that either partner brought into the marriage as well as inheritances received after the marriage began. Form of ownership of such assets is important, too. If they are held in an account designated either “tenants in common” or “joint ownership with right of survivorship,” they will typically be considered commingled assets belonging to both spouses equally. For this reason, assets that are intended to be maintained as separate property should be held either in a trust designated for that purpose or in an account owned only by the partner who owns the assets.

Another important consideration is how beneficiaries of various accounts and assets are designated. Assets like life insurance policies, annuities, and retirement accounts have named beneficiaries who will receive the assets upon the death of the account owner, and such assets typically pass to the beneficiaries without going through the probate process. For this reason, it is especially important for both spouses in a new blended family to review their life insurance policies, retirement accounts, and other assets with named beneficiaries to make sure that the designations reflect their current wishes. Because many beneficiary designations also permit the owner to set the percentage of the total benefit that will go to each beneficiary upon the owner’s death, these percentages should also be reviewed to be certain that they accord with the owner’s current intentions.

If you have questions about the best estate planning strategies for your family — blended or otherwise — I can help you find the best answers for your situation. Please get in touch.

Stay Diversified, Stay Your Course!