Estate planning for any family is crucial, but it’s even more important for families with remarried spouses, children, and stepchildren.
American families have become increasingly diverse — and complex — in recent decades. High divorce rates and second marriages have made blended families a relatively common occurrence in today’s society.
Planning out asset division can be a difficult exercise for any family. In blended families, this is even more true. Here, we’ll walk through some of the unique considerations that come with estate planning for blended families. Given how emotionally and logistically complicated this can be, we’ll also look at the benefits of having a trusted advisor to help you navigate the process.
The ABCs of Estate Planning
Before we dive into the complex questions surrounding estate planning for blended families, let’s start with the basics. An estate plan should include a will and possibly a trust, beneficiary designations, a durable power of attorney, and medical directives. Perhaps most importantly, it should outline who is going to receive your wealth — stocks, bonds, real estate, retirement funds, etc. — when you pass away.
“The earlier you commence the estate planning, the better,” says Hanni von Metzger, Vice President and Trust Advisor at Regions Bank. “The beauty of estate planning is that one you can leave everything in writing, which avoids complications and legal expenses later on.”
Special Considerations in Blended Families
In blended families, estate planning can be more complicated. To start with, there are more “triggers” that can lead to revisions in your estate plan. Divorces, remarriages, new children, stepchildren, and the arrival of grandchildren are all occasions to revisit your estate plan to make sure your wishes will be carried out.
A crucial consideration in blended families is that each spouse might have a different vision for how assets should be divided. If one spouse enters the marriage with considerably more assets than the other, that spouse might feel entitled to have more say over asset distribution. And if each partner has children from a previous marriage or marriages, conversations about who gets what can quickly become contentious.
“It can become very emotionally charged,” von Metzger says. “Sometimes spouses can be torn between the love that they have for their new spouse and the love that they have for their children.” Children might even feel compelled to influence the decision-making process, she says.
This clash of expectations is why many heads of blended families might want to avoid having this conversation altogether. But no matter how uncomfortable it is to have this conversation now, it will be even more uncomfortable later on for your surviving spouse and children.
Likewise, if you don’t do the planning, the government will do it for you, and your assets will be placed under court supervision. “I think the best gift that you can leave your children and your spouse is to leave everything organized,” von Metzger says.
Tackling the Difficult Conversations
In estate planning conversations for blended families, von Metzger meets with the spouses together and individually so that both spouses can make their desires heard. “We discuss what their relationship is with their children, and what values they have in common. We also discuss the responsibilities that come with being a trustee,” she says.
These conversations can lead to common points of concern. “Sometimes one spouse will request that the surviving spouse is taken care of, while the principal be made available to the children,” says von Metzger. These preferences can help one design a unique estate plan.
Finding the Right Estate Plan for your Blended Family
There are a variety of options for setting up an estate plan in a blended family, and talking with an advisor can help you find the right solution for your particular needs.
Von Metzger says that one popular arrangement is to have a revocable trust for a spouse and a separate irrevocable trust for the children. This means that in case of divorce, one could revoke the spouse’s trust, while the children would still receive some of the assets.
Similarly, you could set up a qualified terminable interest property (QTIP) trust, where the income goes to the surviving spouse, but after that spouse dies, any remaining principal goes to the children, von Metzger says. Another option is for the couple to create two revocable trusts, with each spouse splitting the assets and setting the terms of their individual trusts. This setup is helpful in cases where the spouses have different visions for passing on assets to their children.
Von Metzger points out that designating a successor trustee is a crucial decision, and one not to be taken lightly. “For example,” she says, “naming a spouse as a successor trustee when there are children from a first marriage, provides the spouse legal right over those trust assets. The question would be “will the children from the first marriage be appropriately cared for?”
One solution is for a spouse to designate a corporate trustee in order to ensure that assets reach their intended recipients. “A corporate trustee is one of the best options because the corporate trustee is objective. Wishes made in a trust agreement, will be followed,” explains von Metzger.
When it comes to the specifics of dividing assets, von Metzger works with her clients to make sure every asset is taken into consideration, from IRA funds to businesses to intangible assets. In each case, she takes a tailored approach to her clients to meet their unique needs.
Fostering Trust and Understanding
As we’ve seen, estate planning for blended families can ignite unpleasant emotions and conflicts. An experienced advisor can help broker agreements between spouses and ensure that each person sees the other’s point of view.
Von Metzger warns against postponing estate planning discussions, no matter how difficult they can be. “Not having a conversation now can lead to legal issues in the future. By having the conversation earlier and defining what one wants and ensuring that wishes will be followed, a lot of potential problems in the future will be prevented.”
When it comes to estate planning, have you covered all bases?
