These days, second and even third marriages are fairly commonplace. And the estate planning issues that arise from multiple marriages 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.
If you have children for whom you want to leave an inheritance, you should think about how and when you want those assets passed on. 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. Or if your kids are very young, you may decide to leave that decision up to your spouse or a third-party successor trustee.
A common scenario for blended families is for one spouse to set up a living trust that names themselves as the trustee during his or her lifetime, with the surviving spouse named as successor trustee once they die. This is done to ensure the surviving spouse will be provided for for life and the children will receive the remaining assets once the new spouse passes.
But the new spouse and your children may have conflicting interests, especially if the spouse is older. For example, the new spouse may choose to invest the assets
conservatively, ensuring he or she has enough money to live comfortably for a few more decades. However, the children—particularly if they are younger—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 one spouse becomes incapacitated, you must decide who you would want to make legal and medical decisions for you. If the 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.
This article is a service of Jenny Ling, 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.