Estate Planning Tips for the
Blended Family
These
days, many families include children, stepchildren, former spouses and in-laws.
According to the Pew Research Center, the number of remarriages has been
steadily rising over the past few decades. In 2013, 40% of marriages included
at least one spouse who had previously been married. In 20% of remarriages,
both spouses had had a previous marriage. Such situations require careful
estate planning with clear goals. The biggest issue in blended families is,
‘where does my money go when I die?’ Below are some things for those in a
blended family to consider when setting up their estate plan. Be sure to
consult with your financial advisor before making any changes to your estate
plan.
Be
careful about beneficiary designations - One of the biggest mistakes people make
when determining who will inherit their assets is in the beneficiary
designations on retirement accounts and insurance policies. The best-laid
estate plan can be destroyed by an incorrect beneficiary designation.
Regardless of what a will or trust says, the asset goes directly to the primary
beneficiary or beneficiaries. For example, if your will states that a
particular asset, such as an IRA, is to go to your current spouse, but you have
named your child as primary beneficiary, the IRA will go to your child. Another
error occurs when a spouse names the current spouse as primary beneficiary and
the children as equal contingent beneficiaries, believing that everyone will
get something. In truth, the primary beneficiary receives all the assets in
this situation and will be free to act as he or she wishes. One way to avoid a
potential problem is to name each beneficiary as primary and designate the
percentage of the asset each will receive.
Plan
trusts carefully
- Remarried couples often use a trust to spell out the distribution of assets.
The trust—either revocable or irrevocable, depending on their situation and
amount of assets—does not preclude the will, however. A will is still needed to
ensure that assets not titled in the name of the trust are transferred
according to the decedent’s wishes. Another challenge with trusts occurs if a
spouse sets up income for the surviving spouse with the remainder going to the
children and then dies prematurely. In this scenario, the children could have a
long wait before receiving their inheritance, particularly if the surviving
spouse is not much older than the children. One way to avoid this situation is
to implement a strategy that leaves an immediate inheritance to the children,
perhaps naming them as primary beneficiaries on an insurance policy so they
receive some money upon the first spouse’s passing.
Use
a prenuptial agreement - The mechanics of designing an estate plan are bound
to run more smoothly if a couple makes decisions about their assets and puts
them on paper before tying the knot. A prenuptial agreement will start a couple
on the right road to an understanding, though it does not replace a written
estate plan. Because the prenuptial agreement is a contract, be sure the terms
of the will and/or living will are in line with the intentions spelled out in
the prenuptial agreement. Otherwise, you could set up a potential court battle
for your heirs. If the intent going into the marriage is to keep assets
separate so that each spouse can pass an inheritance to their own children,
then be sure to maintain that separation. Once you start blending assets in
accounts, then the other spouse has a claim. If one spouse decides to claim
“elective share” (a percentage of the estate), the claim is only against
marital assets. Non-marital assets and separate property are considered
separate and not subject to the elective share. The amount of elective share is
determined by state law, but typically is between one-third and half of the
estate.
Communicate
the plan
- Drafting an estate plan by no means ensures a smoothly blended family. That
is why it is critical to maintain meaningful and ongoing communication among
all concerned parties. Many families set up family meetings to inform everyone
what is expected of them. Regardless of the chosen method of communication, a
well-thought-out estate plan will have a better chance of a seamless
transition. If there are no surprises, things have a much better chance of
going smoothly.
Citations
Thanks,
D Cory Payne
Beehive Insurance Retirement Planning Services
302 West 5400 South #101
Murray, Utah 84107
801-685-6875 Direct
801-554-7797 Mobile
801-685-2899 Fax
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