In many blended families, there are often concerns over how assets will be passed down after a death. These concerns are often rooted in a fear that the new spouse will not treat biological children and stepchildren equally or will disinherit them.
This can be avoided by having an estate plan in place.
Identify Your Beneficiaries
Whether you are single or married, making an estate plan and determining the beneficiaries of your assets are essential tips and advice on estate planning for blended families. Without a plan, state law will dictate how your estate is distributed, and in many cases, children from a previous relationship may be disinherited. When it comes to a blended family, this can be especially difficult as you may want to preserve assets like family heirlooms or a closely-held business for your spouse and new children and provide for the children from your first marriage.
One option is to leave the bulk of your assets in a trust for your surviving spouse, who will access the income and principal from the faith. At the surviving spouse’s death, the remainder of the trust would pass to the children from your first marriage. In addition, you may consider a QTIP trust, which will defer estate tax for your spouse and children. However, these options could be better, as they may create competing interests and disagreements between family members. A seasoned estate planning attorney can help you navigate these concerns.
Plan for Incapacity
Many of our second-marriage clients have children from previous relationships who want to receive an inheritance. Estate planning allows you to plan the distribution of assets in your family and avoid conflict.
We can create a Living Trust that will automatically pass your assets to your loved ones without Court intervention. This can be particularly helpful in blended families as it may avoid needing a court-appointed guardian. It also prevents your spouse from spending all your money and property before your children receive their inheritance.
One way to minimize conflict after your death is to set up an incapacity plan that outlines who will manage the business and make financial decisions for you. This helps to ensure that no one person dominates the company and that a successor is named for all roles.
Another important consideration is how to handle your IRA. Often, people leave their IRAs to their spouses and then their children. This can cause issues when there are other heirs, especially if the surviving spouse is younger and less responsible. A trust can help by providing the surviving spouse with income from the IRA while giving them access to the principal and allowing the remainder of the assets to pass to the children.
Create a Power of Attorney
Regarding estate planning, a power of attorney is a crucial document. It names the person you want in your finances or healthcare should you become incapacitated. Many people choose their spouse, but there are better choices for a blended family.
It could cause problems if the surviving spouse doesn’t follow your wishes or gets into a financial dispute with your children from prior relationships. Consider a revocable living trust. This type of trust allows you to control your assets during your lifetime and dictate when a spouse or child will inherit.
When you have a trust, your documents will not go through probate, and the trustee can invest funds for income or long-term growth based on your desires. This is a better option for a blended family than joint ownership or beneficiary designations because you can avoid potentially costly legal disputes that often arise concerning these types of assets. A capable attorney will help you determine if a trust suits your situation.
Create a Healthcare Power of Attorney
When people create a medical power of attorney, they choose an agent to make health care decisions for them in an emergency. Most people name their spouse as their medical agent. But if the family is blended, there are many reasons to consider a different person.
Blended families are more complicated than traditional first marriages, and that’s also true for their estate plans. People who plan their estates typically use trusts, a great way to protect assets from creditors and taxes while keeping them safe from conflict and litigation.
For example, the first spouse to die might leave some of their IRA assets in trust for the benefit of the surviving spouse, who will get the trust income but not the principal. Then, upon the surviving spouse’s death, the remaining trust assets might pass to the children of both spouses or their children. Families need to discuss these issues in advance and participate in open conversations. That way, they can ensure their wishes are met.
Create a Will
Some people enter a new marriage with an estate plan from a previous relationship that they neglect to update. Only some people create an estate plan, believing their spouse will pass their things to their children reasonably and equitably if they die.
These assumptions can lead to disasters. In one case, a man left his daughter nothing in his will and passed away. His wife was a stepmother to his daughter, and the two did not get along very well. When he died, his daughter was upset that she had not received anything from her father’s estate.
This is an example of the need to plan for succession. By creating trust and naming your children as beneficiaries, you can ensure your loved ones receive the inheritance you intend. In addition, a trust can help avoid the need for your family to go through probate. This process can be costly and time-consuming. Avoiding probate can save your family money and protect your assets from creditors.