When it comes to estate planning for a blended family, the concept of
“yours, mine and ours” can complicate the process to the point that
family dynamics become permanently strained.
“yours, mine and ours” can complicate the process to the point that
family dynamics become permanently strained.
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 percent of unions included at least one spouse who
had already walked down the aisle. In 20 percent of remarriages, both
spouses had previously said “I do.”
the number of remarriages has been steadily rising over the past few
decades. In 2013, 40 percent of unions included at least one spouse who
had already walked down the aisle. In 20 percent of remarriages, both
spouses had previously said “I do.”
Such situations require advance wealth planning with clear goals.
“The biggest issue in blended families is, ‘where does my money go when I
die?’” said Cyndy Ranzau, associate wealth strategy consultant with RBC
Wealth Management.
“The biggest issue in blended families is, ‘where does my money go when I
die?’” said Cyndy Ranzau, associate wealth strategy consultant with RBC
Wealth Management.
Challenges Of Retying The Knot
In many cases, remarried couples want to ensure the surviving spouse will be cared for in the event one partner passes away—with
the children from their previous marriages becoming the ultimate
beneficiaries of the assets their parents brought to the union. The
challenge comes from designing a plan that keeps all parties satisfied.
The first step is to agree on a course of action.
the children from their previous marriages becoming the ultimate
beneficiaries of the assets their parents brought to the union. The
challenge comes from designing a plan that keeps all parties satisfied.
The first step is to agree on a course of action.
Van Pate, a wealth strategies consultant with RBC Wealth Management,
said he typically draws a flowchart to demonstrate the ultimate path of
the spouses’ assets no matter who passes away first. Once a couple
determines the best path and how much control they want the surviving
spouse to exercise, they can move forward with executing the plan.Here are some tips for planning your estate while maintaining family harmony:
said he typically draws a flowchart to demonstrate the ultimate path of
the spouses’ assets no matter who passes away first. Once a couple
determines the best path and how much control they want the surviving
spouse to exercise, they can move forward with executing the plan.Here are some tips for planning your estate while maintaining family harmony:
It’s All In A Name
“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,” said Ranzau. “The best-laid estate
plan can be destroyed by an incorrect beneficiary designation.”
inherit their assets is in the beneficiary designations on retirement
accounts and insurance policies,” said Ranzau. “The best-laid estate
plan can be destroyed by an incorrect beneficiary designation.”
That’s because beneficiary designations trump everything else, Pate
noted. 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’ve named your child as primary beneficiary, the IRA
will go to your child.
noted. 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’ve named your child as primary beneficiary, the IRA
will go to your child.
Family dynamics can change in a hurry if a remarried spouse neglects
to remove the former spouse as primary beneficiary on a document. “That
makes all types of people unhappy, except maybe the former spouse,” he
said.
to remove the former spouse as primary beneficiary on a document. “That
makes all types of people unhappy, except maybe the former spouse,” he
said.
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.
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.
“If a spouse is a primary beneficiary on an IRA, it becomes his or
her IRA when the owner dies,” Ranzau said. In this case, contingent
beneficiaries don’t matter, she added, because the IRA will go to the
spouse alone.
her IRA when the owner dies,” Ranzau said. In this case, contingent
beneficiaries don’t matter, she added, because the IRA will go to the
spouse alone.
That’s not to say contingent, or secondary, beneficiaries are not
important. If the primary beneficiary passes away at the same time as
you, and there is no contingent beneficiary named, the asset will pass
to your estate and be distributed per the terms of your will. If you
don’t have a will, the assets will pass to your next of kin.One way to avoid a potential problem is to name each beneficiary
as primary and designate the percentage of the asset each will receive.
“It is possible to have multiple primary beneficiaries,” Pate noted.
important. If the primary beneficiary passes away at the same time as
you, and there is no contingent beneficiary named, the asset will pass
to your estate and be distributed per the terms of your will. If you
don’t have a will, the assets will pass to your next of kin.One way to avoid a potential problem is to name each beneficiary
as primary and designate the percentage of the asset each will receive.
“It is possible to have multiple primary beneficiaries,” Pate noted.
A Matter Of Trust
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.
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.
Pate described a common trust scenario for remarried couples: A
husband sets up a living trust and names himself the trustee during his
lifetime, with the intent that the surviving spouse will receive income
for life and the remainder of the trust will go to his children after
her passing.
husband sets up a living trust and names himself the trustee during his
lifetime, with the intent that the surviving spouse will receive income
for life and the remainder of the trust will go to his children after
her passing.
While it may seem like a simple solution, the problem arises when
naming the successor trustee, who will take control when the husband
passes. Many times, the husband names the surviving spouse or one of the
children as the trustee without really considering the consequences,
Pate said.
naming the successor trustee, who will take control when the husband
passes. Many times, the husband names the surviving spouse or one of the
children as the trustee without really considering the consequences,
Pate said.
“If you think about it, the wife and the children have conflicting
interests,” he added. “The wife might invest in bonds for income and if
she lives another 20 years, the investments lose value, leaving the kids
with very little. But if one of the kids is successor trustee, he or
she could invest in pure growth funds, leaving the wife with little to
no available income.” For that reason, he said a professional
third-party trustee without a personal interest in the family is often
the best option.
interests,” he added. “The wife might invest in bonds for income and if
she lives another 20 years, the investments lose value, leaving the kids
with very little. But if one of the kids is successor trustee, he or
she could invest in pure growth funds, leaving the wife with little to
no available income.” For that reason, he said a professional
third-party trustee without a personal interest in the family is often
the best option.
Pate said 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. “Where this really becomes
an issue is where one spouse is not much older than the children,” he
noted.
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. “Where this really becomes
an issue is where one spouse is not much older than the children,” he
noted.
Pate suggested couples 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.Prenuptial Wedded Bliss
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.Prenuptial Wedded Bliss
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 doesn’t replace a
written estate plan, Pate noted.
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 doesn’t replace a
written estate plan, Pate noted.
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.
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, Pate said.
that each spouse can pass an inheritance to their own children, then be
sure to maintain that separation, Pate said.
“Once you start blending assets in accounts, then the other spouse has a claim,” he added.
If one spouse decides to claim “elective share” (a percentage of the
estate), the claim is only against marital assets, said Ranzau.
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.
estate), the claim is only against marital assets, said Ranzau.
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.
To Your Health
Aside from finances, Ranzau said remarried couples should discuss
health care powers of attorney and living wills. If the new spouse is
the designated agent in the event one spouse becomes incapacitated, the
children need to know.In blended families, which are typically more complex because of
the additional players, “it becomes more important to have the
conversation about incapacitation,” she added.
health care powers of attorney and living wills. If the new spouse is
the designated agent in the event one spouse becomes incapacitated, the
children need to know.In blended families, which are typically more complex because of
the additional players, “it becomes more important to have the
conversation about incapacitation,” she added.
Not All Surprises Are Fun
Drafting an estate plan by no means ensures a smoothly blended
family. That’s why it’s critical to maintain meaningful and ongoing
communication among all concerned parties.
family. That’s why it’s critical to maintain meaningful and ongoing
communication among all concerned parties.
“I’ve seen a lot of families set up family meetings to inform everyone what’s expected of them,” said Ranzau.
Regardless of the chosen method of communication, a well-thought-out
estate plan will have a better chance of a seamless transition, she
said. “It’s the surprise that gets you every time. If there are no
surprises, everything generally goes smoothly.”
estate plan will have a better chance of a seamless transition, she
said. “It’s the surprise that gets you every time. If there are no
surprises, everything generally goes smoothly.”
In fact, communication is probably the secret weapon to ensuring a
blended family maintains harmony, said Pate. “I like to think
conversations happen not only before the marriage, but all the way
through.”
blended family maintains harmony, said Pate. “I like to think
conversations happen not only before the marriage, but all the way
through.”
I agree with what you said about a well thought out estate plan having a better chance of an easier transition. It makes sense that the work you put into it, you could get back out of it in the end. My husband and I need to start estate planning, so I will make sure to work with him.