Finding love in the form of a new family is something beautiful and worth celebrating. Blended families—often called stepfamilies or reconstituted families—are formed when at least one of the spouses has custody of their children from a prior marriage or relationship. In the United States, blended families have become quite common and recent studies have shown that 1 out of 6 children live within a blended household.
Parents of newly blended families may overlook certain details of their estate planning upon entering this new chapter of their lives. Below are a few tips and reminders for blended families who are planning for the future and may not be aware of how exactly their new union will affect their estates:
- Determine How to Split the Finances
The properties and assets owned by individual spouses within a blended family may not always effectively align. One partner may want to put their previous house on the market independently, while another may be experiencing a higher amount of debt. A widow may have inherited a large sum of money from life insurance, while a divorcee may have struggled with unforeseen legal fees or a conflict regarding their previous prenuptial agreement. Every person’s circumstance is different.Conversations about personal finance are often tricky or uncomfortable for couples, but it is important to reach a conclusion that makes sense to both parties as early as possible.
- Consider Creating a Trust
Blended families may want to consider looking at a number of different trusts for their estates, depending on their own unique circumstances.The spouse often inherits the assets of their partner’s Will after they pass away. But depending on the relationship between the children and their step-parent, it may be in the best interest for the parents to set up a family trust. This trust will ensure that both the surviving spouse and children will have access to the deceased party’s assets.
In the case of establishing a family trust, you must consider whether you want to set up a revocable or irrevocable trust. It is also important to name a neutral third party as the trustee in order to avoid any potential inter-personal conflict among the inheritors.
- Update Life Insurance Policies & Retirement Accounts
Blended families may already have a life insurance policy and retirement accounts in place. If this is the case, it is imperative that you review and update your beneficiaries as soon as possible.If you pass away without updating your beneficiaries, the money and benefits will go to whoever was designated at the time of your passing, or to the default beneficiaries. In the case where a significant life change has occurred, such as your remarriage, and your beneficiary does not reflect your new spouse, assets can pass in unintended ways.
- Consider Bequests in the Will
If the surviving spouse is designated as the sole beneficiary of a trust, parents in a blended family may want to find another way to ensure that their children are taken care of after they pass. Spelling out bequests in a Will is an alternative way to pass along valuable assets—such as property—to children, which they can own independently of their step-parent.Sometimes, the topic of dividing the estate is addressed within the entire family. While the decision is ultimately left up to the parent, if both the other spouse and the children are aware of the plan, this may avoid difficult feelings and situations.
- Keep Health Care in Mind
Future health care decisions are often a point of contention within blended families. In the event that a parent is rendered unable to determine their own course of treatment, they must create an Advance Directive and name a trusted family member as a health care agent.Health care agents are granted the power to make medical decisions on behalf of their loved ones, should they become incapacitated. The choice between granting that power either to a child or a spouse can be extraordinarily difficult for some families. With all consequential legal decisions for blended families, determining a healthcare agent is dependent on their unique situation.
This is an important decision to make long before any healthcare issues arise. The last thing the members of a blended family want is ambiguity regarding personal responsibility for the health of their loved ones.
Blended families have a number of estate planning tools to consider. Any decisions and revisions related to already-existing trusts and estates should be considered carefully and with the consultation of legal professionals.
At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best estate planning tools for their specific needs and desires. If you have questions about estates and trusts, please contact us at (443) 589-5600.
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