Estate Planning for Blended Families

You have arrived at your second marriage a little bit older and
(hopefully) a little bit wiser. Second marriages and blended families
present their own issues when it comes to estate planning. You would
like to take care of your spouse and your children, but letting them
work it out after you are gone is a recipe for disaster. Once you have
been through a divorce, you understand that “happily ever after” isn’t
always. Fortunately, estate planning that takes into account your unique
family situation can alleviate most of your concerns, allowing you to
freely pursue your second chance at happily ever after.

Good
communication is key. The first step is to have an honest conversation
with your new spouse about your existing finances, goals for the future
and how you expect your assets to be distributed. These conversations
can be difficult and emotionally-charged, but they will reap innumerable
rewards in the long run. If your children are adults, you may also want
to include them in these discussions so that everyone knows what to
expect.

If possible, I suggest consulting with an estate planning
attorney prior to remarriage to assess your options. But, if you have
said “I do” again, it is not too late! The most important thing is to do
something. Don’t let the state determine how your assets will be
distributed.

The biggest concern in second marriages is ensuring
that each spouse’s share of the estate ultimately ends up with his or
her desired beneficiary. That is, if each spouse has children from other
relationships, those children’s inheritance is protected even if their
parent is the first spouse to die. Traditional estate planning
distributes an estate to the spouse and then the children. But, after
the first spouse dies, the surviving spouse can easily amend the
documents to disinherit whomever he or she chooses–including the
deceased spouse’s children!

If one
of you brings significant assets to the marriage, it may make sense to
prepare a separate property trust, before you get married to ensure that
those assets ultimately end up with your chosen beneficiaries. You may
make your current spouse the beneficiary of the trust until their death
and then your children. Or you may have your separate property
distributed directly to your children.

Whether or not you have a
separate property trust, you should also establish a joint trust with
your spouse that has protections for the children. For example, upon the
first of you to die, half of the couple’s assets are placed into an
irrevocable trust for the benefit of the surviving spouse. The surviving
spouse is able to live off of the income generated by that trust, but
the principal is preserved for the children of the deceased spouse. This
kind of trust does require some administrative time and costs, but they
are well-worth the peace of mind provided.

A
durable power of attorney gives you the opportunity to name a trusted
individual to manage your financial affairs and legal decisions during
your life if you are not able. Make sure that any previous powers of
attorney (perhaps naming your previous spouse) are revoked. Execute an
updated power of attorney naming your spouse, your children or another
trusted individual as your agent.

Similar
to a power of attorney, a health care directive allows you to name
someone you trust to make decisions about your health care when you are
not capable yourself. An updated health care directive is always helpful
for medical professionals in the event of an emergency. This also
gives you a chance to discuss your feelings about your end-of-life care,
organ donation and burial arrangements with your new spouse.

You
may have a significant amount of wealth in life insurance policies and
your retirement accounts. The beneficiary designations on those assets
will control who they are distributed to, not your will or trust. Many
people forget to change beneficiaries when they get divorced.

Think
holistically about these accounts and your other estate planning. For
example, you may want to provide a death benefit through a life
insurance plan for your spouse, while allowing the rest of your estate
to pass to your children. It is extremely important that you do not name
minors on your beneficiary designations. Minors are not legally able to
control assets and a guardian may have to be appointed by the court to
manage the asset until the minor turns 18. Speak to your estate
planning attorney about strategies to allow your children to benefit
from your life insurance and 401K plan without court intervention.

You
and your new spouse may be still learning about each other, and that
includes details about financial assets. Often people have smaller life
insurance policies that have been owned forever, a little-used account
at a credit union or an old 401(k) plan from a job left long ago. Now is
the time to share that information and make changes or transfer those
accounts. It will be so helpful for your grieving spouse and family to
not have to play detective after your death.

Moreover, your new
spouse may not know all of your family and old friends. Providing names,
telephone numbers and email addresses for these people so that they can
be notified if something happens to you will help connect your spouse
with your past.

Every blended family is different and each
presents its own set of challenges, both legal and personal, but a
trusted attorney can help guide you through the process and achieve your
goals.