Did you know? The U.S. Census Bureau reports that blended families now outnumber “traditional” families in the United States.
Estate planning is different for blended families. Things can get complicated when spouses have remarried – especially when they have stepchildren and biological children together.
It rarely makes sense for a person who remarries or enters the relationship with assets to name the spouse as the sole beneficiary. Instead, they must make careful estate planning decisions and spell out matters in a legal document. Here are some tips for doing it right.
Mind Your Beneficiary Designations
When you open a retirement account or insurance policy, you’re asked to name a beneficiary. Many people name their beneficiaries and then forget to update them. This can be a big problem when family dynamics change, like when a divorce happens and spouses remarry. Old, outdated beneficiary designations can mean that your money goes to an ex – even if that’s the last thing you’d ever want.
Blended families also run into trouble when they incorrectly name primary and contingent beneficiaries. They think that by naming everyone, everyone gets something. But that’s not true. The primary beneficiary will get the asset (for example, the retirement account) when the owner dies. Contingent beneficiaries don’t receive anything because the asset goes to the primary beneficiary alone.
That doesn’t mean the contingent beneficiaries aren’t important. They are. If the primary beneficiary passes away at the same time you do and you haven’t named any contingent beneficiaries, the asset will pass to your estate and be distributed according to the terms of your will.
If you truly want everyone to get something, try naming them as primary beneficiaries and designating the percentage that person should receive. Of course, it’s always best to consult with your estate planning lawyer first.
Trust in Trusts
Trusts can also be a great estate planning tool for blended families if they’re used correctly. Parents in blended families often choose to make their children the beneficiaries of a life insurance trust. That way, they receive money when the first spouse passes away.
But, depending on family dynamics, using trusts to transfer assets to children can have unintended consequences. It’s always best to talk with an attorney.
Consider Health as Well as Assets
When it comes to estate planning for your blended family, don’t just consider money. Take time to think about who will make important health decisions for you in the event you cannot speak for yourself. Will your new spouse make the decisions? Or will your adult children have the final say?
Failing to put a living will in place can mean a lot of stress and conflict if something happens. One of the most caring things you can do for your loved ones is to give them guidance, just in case.
If Things Seem Unclear, Draw Them Out
A flowchart might help you make the right estate planning decisions for your blended families. Use the chart to map out the path your assets and your spouse’s assets will take, no matter who passes away first. Seeing a plan drawn out on paper might better help you choose the right option.
Don’t Try to Do It Alone
The best way to protect your blended family when making key estate planning decisions? Don’t try to do everything yourself. Instead, talk with an experienced attorney who knows how the law may affect you. At White & Associates, we have extensive experience helping blended families make estate planning decisions. You are welcome to contact us with your questions.