Estate Planning Considerations For Blended Families
You’ve probably heard that marriage is better the second time around. Well, I don’t know if that is statistically true or not, but the fact is that there are more second and third marriages and more blended families than at any other time in history. Blended families include stepchildren, step-grandchildren, children of single-parent families, children born outside of marriage, and those situations where someone other than the parent is raising a child.
Traditional estate planning strategies do not take these anomalies into consideration. Most estate planning strategies assume a traditional nuclear family. But as blended families become more common, new strategies apply and are being developed. If you are in a blended family and are creating a will or an estate plan, there are several risks to become aware of so you don’t make mistakes that will unintentionally disown children or keep an ex-spouse as the primary or only beneficiary of your assets.
As more blended families establish estate plans, is my sincere hope that mistakes can be avoided. Please review the following common issues that have come to the foreground that have been responsible for creating ill will and chaos in blended families the loved one left behind.
Joint tenancy issues: In blended families, it is all too easy to accidentally disinherit children. This may sound surprising, but it is a relatively common problem that can arise when spouses with children from previous marriages place assets like homes, automobiles, and bank or investment accounts into joint tenancy with the new spouse without fully considering the impact this can have on those children. At the death of the first spouse, all assets that are held in joint tenancy pass to the surviving spouse automatically. Once these assets become the property of the surviving spouse, he or she is under no legal obligation to pass them on to the children of the deceased spouse.
IRA and 401K Account issues: Unless a spousal waiver is signed, federal law says that a spouse is automatically entitled to 50% of a retirement account upon the death of the account holder – regardless of what the beneficiary designation says. It is critical that you update your retirement account designations when you remarry. Even if you want your new spouse to benefit from your retirement account, you may want to ensure that the contingent beneficiaries cannot change after your death, as once the account is rolled over new beneficiaries can be named. Consider an Inherited IRA Trust for this purpose.
Increased risk of family conflict: For many blended families, mitigating against the potential of family conflict from children against stepparents is a top priority. No one wants their assets squandered in legal proceedings if conflicts arise between biological and stepchildren after a parent becomes incapacitated or dies.
Review and update all financial accounts, legal and medical directives
Many people do not think about updating their wills and estate plans. It’s a good idea to review both on an annual basis and consider if any major changes have happened. A new marriage is one of those events. The birth of children, the death of someone designated as a medical directive or Power of Attorney. You can never guarantee that everyone in the blended family will be happy with the arrangements you’ve made. But that’s not always the point. More important is that you don’t want to inadvertently shut someone out of an inheritance or give someone everything that you hadn’t planned on giving anything!
Give our office a call to schedule a review of your estate plan or to establish an estate plan for your new blended family.