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More and more families are considered "blended" which presents extra considerations in drafting estate planning documents. Unlike traditional family structures, reports Barron's recent article titled, “When Remarrying Creates a Blended Family: Advice From Financial Pros,” blended families may involve complex relationships, children of various ages and diverse financial backgrounds - these may make planning more detailed and may require extra considerations and discussion between spouses and their attorney.
A blended family often occurs after a divorce or death of a spouse and a subsequent remarriage. Often there are children from both families that have come together. The blended families can be blended while the children are minors and still living in the home or after some or all the children are adults. A blended family make estate planning very important - especially if we want to protect the rights of the children.
Often in a blended family, the parties marry later in life and often come to the marriage with different financial and family circumstances. More and more blended families have a mix of stepparents, stepchildren and biological children. The goals of the spouses' priorities and goals for their current family structure as well as any future inheritance and retirement planning. There is often a desire to plan for the spouse before leaving funds to children - even children from a prior relationship. However, each family is different so the goals of each person should be considered. The goal is to ensure fair and equitable asset distribution, while respecting the family dynamics. There are ways to preserve funds for children and a surviving spouse.
Family dynamics play a crucial role in shaping financial decisions. Working with an experienced estate planning attorney to help outline the relationships band create an estate plan that meets that families needs. Other parents and past relationships can influence the current and future financial plans.
Estate plans must consider previous marriages, the first spouse and existing commitments to children from these relationships. If children are minors, this can be especially important.
After a divorce or remarriage, many forget to review any existing estate planning or beneficiary documents on life insurance policies, an IRA, or other retirement plans. In the event of incapacity or a medical emergency, those in a second marriage may be surprised to find that someone they may not want is designated to speak on their behalf as a medical or financial agent in an outdated power of attorney. Life changes are pivotal times that necessitate regular reviews and updates of estate plans to ensure that they remain relevant and effective for the new family.
This depends on your family, your goals, and the needs of the spouse. Often age, length of marriage, relationship with stepchildren and ability for the children to receive from the other parent's estate are considered in planning.
Open communication helps address potential conflicts and ensures that all family members' needs and expectations are considered in the estate planning process. It is especially important as a family to discuss financial habits, asset distribution preferences and future plans candidly. This approach helps to create a comprehensive and conflict-free estate plan. Discuss questions about your mutual financial goals with your spouse. Ask yourself and each other questions like: Are you concerned about future divorce or lawsuit protection of the estate? What does each family member need? What are each spouse’s expectations for who gets what assets in your combined or separate estates? How will you create a plan that ensures financial security and protects children from previous relationships? Working with a knowledgeable estate lawyer is a way to ensure that your discussions, goals and plans are addressed, while helping to navigate the emotional issues inherent for many families when discussing finances. An estate professional has the training to balance fairness and practicality, ensuring that the division of assets does not unfavorably impact any family member.
An attorney can help guide the conversation to tease out goals and expectations for each spouse. It may be important for each spouse to obtain independent counsel. An attorney can guide blended families about how to decide who they will designate to make financial and medical decisions in the case of their disability or incapacity. We often see unwanted results in blended families who use a form or attorney who does not specialize in estate planning. This can lead to family disputes and misunderstandings once you are gone. Specificity is key to avoiding conflicts and ensuring that the estate plan reflects the new mixed family's intentions.
A new estate plan should be created for blended families to provide for the surviving spouse and the deceased spouse’s children. One way is to retain the deceased spouse’s assets in a trust or trusts. The trust provides for all the income to the spouse and discretionary principal distributions. When correctly drafted and executed, trusts can also help to avoid probate. A Qualified Terminal Interest Trust (QTIP) is one solution that may permit the trust to qualify for the marital deduction for estate tax purposes.
Marital trusts are another option that can be an effective tool for blended families. They allow for the transfer of assets to the surviving spouse, with the remainder going to children as secondary beneficiaries upon the death of the second spouse.
The selection of trustees is an important decision for a blended family. In this case, it may be better to have a professional fiduciary who is not emotionally engaged with one side or another to alleviate any emotional baggage.
Some trusts have more flexibility after the death of the first person. There are ways to lock in expectations.
Neglecting estate planning can lead to unintended consequences, such as assets inadvertently going to ex-spouses or creating financial hardships for surviving family members. Professional financial and estate advisors play a crucial role in encouraging blended families to be proactive in their financial and estate planning, ensuring that estate plans are up-to-date and reflective of the family's current situation.
Consult an estate planning attorney prior to getting married to prepare a prenuptial agreement - this can help outline expectations. Once you are married, work with the attorney to draft a plan that meets your needs. If no prenuptial agreement is in place, this will is still an important step. Without a discussion and well drafted plan, your wishes may not be met.