When you start a blended family, it’s understood that things are going to get a little more complicated. You may have to juggle spending time with your children and stepchildren, or work to maintain a healthy relationship with an ex-spouse. You can no longer simply concern yourself with the family living under your roof. And when it comes to money plans, there are unique issues too.
Blended families can have intricate money needs. It doesn’t get any simpler when it comes to estate planning. There are unique considerations blended families need to take into account. Here are some of the most important things to consider when estate planning for a blended family.
If you’re divorced and remarried, double-check the beneficiaries listed on your life insurance, retirement and bank accounts. In most states, the beneficiary named on the policy or account records will receive the funds—even if you later name someone else for that same asset in your will.
Changing the beneficiary on your will is not enough. So for example, your ex-spouse or partner may still receive the assets from your retirement accounts even if you name your current spouse in your will. Some estate planning advisors instruct people to avoid this issue by not naming a beneficiary on your account. However, that can have its drawbacks too.
Each financial firm has its own rules for who gets the money when you don't designate a beneficiary. Without someone named, some firms may distribute the assets first to the spouse, then children and lastly to the estate. Others may do it differently. To help avoid your investment accounts getting hung up in probate, you may want to name beneficiaries on retirement accounts and provide transfer-on-death instructions on non-retirement accounts.
Depending on the type of asset you have, naming or not naming a beneficiary may impact the tax rate level on the assets when they are distributed after you pass.
If you are estate planning with a blended family, you may want to consider hiring a professional who is familiar with the specific needs of families with unique situations. There are several online services that create wills and trusts for a small fee, but they may not be capable of creating a complex estate plan that stands up in court or ultimately achieves your desired intentions.
If a will isn’t upheld in probate court, then the state will disburse your assets based on the local laws. This means it will also take longer for your assets to be distributed.
To find an estate attorney in your area who specializes in blended families, the local or state bar association may have an attorney directory. If so, look for a lawyer who focuses on estate planning. If you’ve used a lawyer before for other reasons, ask for an estate lawyer recommendation.
Look for an attorney who focuses on estate planning. Even better, find one who understands the distinct needs of blended families.
Attorney fees for creating an estate plan can vary greatly, depending on the complexity. Once the will is created, future updates can be made as your personal circumstances dictate, and your will can be modified for an additional fee. Changes typically cost much lower than the original cost to initially create the will.
No one wants to talk about death, let alone the tedious details of estate planning. But it’s crucial to discuss it with your family before it’s too late. This becomes even more important if you’re not dividing money equally among all your children. Or you’ve remarried and want to leave more of your assets to your current spouse and children from the current marriage. Some people will give older children less money than younger children, or more money to children with their own families than their unmarried siblings.
Sit down with each of your kids and review the will. Explain your decision-making process and why you’ve allocated assets a certain way. Give them each a copy of the will if you’re comfortable and tell them which lawyer or law firm drafted it.
Make sure to discuss physical items, like heirlooms, family photos and other valuables. Your children may want to receive certain objects after you die, and it’s better to agree on these before you pass away. In some cases, you may want to designate these items in the will so it becomes legally binding.
If you avoid talking to your family about inheritance, your children or heirs could be more likely to contest the will. Not only could this lead to a costly legal battle for your surviving relatives—it could create a rift that lingers long after your estate is divided up.
You can help prevent this unfortunate scenario by being open about your intentions ahead of time. You’ll be able to avoid future conflict for your family and ensure that your memory remains untainted by material concerns.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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