The path to peace in a blended family isn’t always straightforward — even if your children are actually adults. Add money to the mix and things get even more complicated.
The key to estate planning for blended families is to be as thorough and transparent as possible. This guide will help you ensure your assets don’t end up in probate court or in the wrong hands entirely.
Consider A Marital Contract
As much as marriage is about love, it is a legal contract, as well. Many spouses-to-be consider signing a marital agreement prior to determine how assets would be divided in the event of a divorce or death of a spouse. These agreements may be referred to as “premarital,” “prenuptial” or even post-marital agreements. These agreements often contain provisions relating to estate planning or what happens to the assets of the spouses upon their death. Many people entering into second marriages, particularly those with grown children, opt to discuss these issues prior to marriage and can utilize a marriage contract to ensure everyone is on the same page.
Update Your Beneficiaries and Proxies
Your beneficiary is the person who receives the funds or benefits upon your death. You can name a primary and contingent beneficiary. Updating this for all accounts should be one of your first steps after any big life event, like a birth, marriage, divorce or death. The last thing you want is a death benefit going to an ex-partner simply because you forgot to remove them as your 401(k) beneficiary. You also won’t want that person to make potential life-ending medical decisions for you. Here’s a list of what you’ll need to update:
- Life insurance
- Individual retirement account (IRA)
- Power of attorney
- Health care proxy
- Safe deposit box
How to Divide Assets in a Blended Family
There are three typical kinds of estate planning options for blended families: wills, trusts and outright ownership. Your estate planning lawyer can offer suggestions and help you and your spouse create very clear guidelines about your wishes after your death.
Should I Create a Trust or Will for My Blended Family?
A will establishes who will receive your property and assets after you die; a trust is an immediate contract. In a will, these assets go through probate and are a matter of public record, whereas a trust is private and bypasses probate. Wills are considered simpler documents — use them to name guardians for your children and outline your final arrangements. If you have multiple properties, vast assets or inheritance stipulations, a trust might be the right choice for your family.
What’s the Best Trust for Blended Families?
A marital trust minimizes estate taxes and transfers your assets to your surviving spouse as the sole beneficiary. A family trust, on the other hand, allows you to distribute your assets between multiple beneficiaries. You might also consider an IRA legacy trust where you can specify percentage allotments and ages when your children can withdraw money, allowing the inheritance to grow.
Should I Leave My Assets to My Family Outright?
With outright ownership, your assets move to your chosen beneficiaries without a trust. This is a simpler estate planning tool, but one that leaves your assets at risk to a divorced spouse or creditors in the event of bankruptcy.
Will My Stepchildren Inherit My Assets?
Your stepchildren don’t have legal inheritance rights — the state would automatically give your assets to your spouse, biological kids or other surviving relative if you don’t have an estate plan. However, depending on your relationship with your stepchildren, you may choose to designate them as a beneficiary in your will or trust.
Consult Your Financial Advisor
Your financial advisor can help you prepare for your financial future. They’ll help you navigate wealth management, investments and financial planning — and can answer the tough questions about college, insurance, succession and estate planning for blended families