Planning For Blended Families

Blended families can involve children from a prior marriage as well as joint children, sometimes joking referred to as "his, hers and theirs.”

Most parents want to ensure that their assets will pass to their children, not their stepchildren. However, absent good estate planning, there is no guarantee that their children will inherit their assets. In fact, if the couple creates common "I love you” wills such that their assets pass to the survivor of them, there is a significant likelihood their children will be totally disinherited.

This is because all of their assets will pass to the surviving spouse to do with as he or she pleases. More often than not this means excluding the stepchildren, who then receive nothing.

The fact that Americans are living longer, and sometimes remarrying much later in life, means that blended family issues come into play there too. Baby boomer children expecting an inheritance may have to wait much longer than expected. But perhaps more difficult, who should pay for the cost of the surviving spouse’s care? Should the stepchildren be forced to use their inheritance to pay for an aging step-parent’s care, particularly after only a short-term marriage? Or should this burden fall on the children?

Other considerations for blended families and second marriages are:

• If each has considerable assets, it may be wise keep the assets and estate planning separate. If there will be a pre- or post-nuptial agreement, it should be reviewed by an estate planning attorney (before signing).
• If one spouse has considerably fewer assets than the other, it is possible to provide for this spouse until death or remarriage, then have the remaining assets distributed to the children of the "wealthier” spouse.
• If the new spouse is much younger, the children of the older spouse may be concerned that the new spouse is only after the money. These feelings may subside as the marriage lengthens. But if the younger spouse is closer in age to the children, they may be wondering if they will ever receive their inheritance. Consider distributing some of their inheritance upon their parent’s death, then the rest at the surviving spouse’s death or remarriage.
• Naming a trust as beneficiary for life insurance policies and tax-deferred plans is often a good choice for second marriages. This will allow the owner-spouse to keep control over how and to whom the proceeds are distributed. The surviving spouse can receive lifetime income, yet the owner-spouse can keep control (through the trust) over the rest of the proceeds. Keeping the proceeds in a trust will also protect them from irresponsible spending, creditors, predators, divorce, remarriage and even estate taxes, if done properly.
• Be sure to include planning for disability and long-term care. If one spouse becomes ill and Medicaid assistance is needed, the combined assets of the couple will be considered "available assets” to pay for the care of the ill spouse. Long-term care insurance may be needed to protect the assets of one or both spouses.