Divorce and remarriage have become quite common today and the estate planning issues that arise from having multiple marriages in your life can be highly complex and confusing. Merging two families into one presents unique legal and financial challenges that can cause significant conflict and distress unless effective estate planning has been put into place early on. Here are a few of the most common issues that blended families should keep in mind when it comes to estate planning:
Keeping assets separate
If you get remarried and have children from a marriage, you need to think about how you want to balance providing for your new spouse and ensuring the children are taken care of in the event you become incapacitated or when you die.
If you intend to keep your assets separate, so each spouse can pass an inheritance to their own children, you’ll need to create and maintain separate accounts; One account contains the assets you want to pass on to your children, and the other can be either a separate or joint account that contains the assets you want to share with your spouse.
If you and your spouse commingle your income and assets, then the new spouse will have claim and control of those assets when you die which can leave your kids with nothing. Moreover, joint accounts can be subject to claims from a former spouse and/or creditors so unless you want your new spouse to share that risk, keep at least some assets separate. If you’re keeping assets separate, be sure to talk with us about how to do that properly as it can get tricky, particularly when you start sharing some assets and buying new assets together.
You should think about how and when you want your children to inherit their assets. For example, what if you die prematurely or your spouse is significantly younger than you? Do you want your kids to wait until the new spouse dies to claim their inheritance, or do you want them to receive it immediately following your death?
Establishing a trust can protect assets for each spouse’s children and stipulate when the kids receive their inheritance. You may want to provide your children with some of their inheritance, such as proceeds from a life insurance policy, upon your death and then release the rest at some point in the future. If your kids are very young, you may decide to leave that decision up to your spouse or a third-party successor trustee instead.
Often in blended families, one spouse will set up a living trust that names themselves as the trustee during their lifetime with the surviving spouse named as successor trustee once they die. This is done to ensure the surviving spouse will be provided for life and the children will receive the remaining assets once the new spouse passes.
However, the new spouse and the children may have conflicting interests, especially if the spouse is older. For example, the spouse may choose to invest the assets conservatively to ensure that they have enough money to live comfortably for a few more decades. However, the children might be better off having the assets placed into higher-risk investments, which can offer better returns in the long run but leave less income for the surviving spouse.
In this case, it’s best to name a neutral third-party as successor trustee so both the children and surviving spouse’s interests can be balanced fairly. That said, we do recommend leaving at least something to your children from a prior marriage immediately upon your death (in trust if your children are minors). By doing so, you can mitigate potential conflicts between your children and surviving spouse.
Beyond finances, the issues of power of attorney and health-care directives must also be discussed. If you become incapacitated, you must decide who you would want to make your legal and medical decisions. If your children are young, it’s probably best to leave those decisions up to your surviving spouse. However, if your children are older, you may want them included in the discussion of how your health-care decisions will be made.
As your Personal Family Lawyer®, we’re specifically trained to work with blended families, ensuring that you and your new spouse can effectively and clearly document your wishes to avoid any confusion or conflict over how the assets and legal agency will be passed on in the event of death or disability. If you have a blended family or are in the process of merging two families into one, contact us as your Personal Family Lawyer® so we can discuss all of your options.
This article is a service of Levi Alexander, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.