Blended families, those comprising divorced and remarried individuals as well as multiple step-siblings, often face unique challenges when it comes to estate planning. Traditional estate planning approaches may not be suitable or fair for everyone involved. Below, we delve into some estate planning strategies specifically tailored to the needs of blended families. These aim to provide peace of mind, protect assets, and ensure that each family member is taken care of.
Initial Steps: Open Communication and Clarity
Before diving into legal frameworks and financial assets, establish a foundation of open communication. Discuss with your spouse and adult children how you envision distributing your assets. This might be uncomfortable, but it's crucial for eliminating misunderstandings later. Knowing what everyone expects can help in crafting a plan that reflects your wishes and is legally sound.
Utilize Trusts for Flexibility and Control
A trust is a legal arrangement where an individual (the trustor) gives control of their property to a second party (the trustee) for the benefit of a third party (the beneficiary). They can provide you with a higher degree of control over the distribution of your assets.
A Revocable Living Trust allows you to maintain control of your assets while setting terms for their distribution upon your death. You can specify how, when, and to whom your assets will be distributed. This trust is particularly useful in a blended family situation for ensuring that assets go to the intended beneficiaries, like biological children or a new spouse.
A Qualified Terminable Interest Property (QTIP) Trust can be beneficial if you wish to provide for your surviving spouse during their lifetime while ensuring that the remaining assets go to your children from a previous marriage. With a QTIP Trust, income generated from the trust's assets goes to the surviving spouse, and upon their death, the remaining assets go to other beneficiaries, such as your children.
Wills and Prenuptial Agreements
Wills are essential but may be complicated by state laws, especially if there are children from a previous marriage. To mitigate this risk, you can use a Prenuptial Agreement to outline what happens to assets in the event of divorce or death. While less common, these agreements can also be made after marriage (Postnuptial Agreements) and can be invaluable tools for asset division in blended families.
Titling of Assets
How your assets are titled can have significant implications for estate planning. Assets can be held jointly or individually, and each type has its own advantages and drawbacks.
Joint tenancy with rights of survivorship is an option suitable for ensuring that a particular asset immediately passes to the surviving co-owner, typically a spouse, without the need for probate. However, this doesn't protect the interests of other beneficiaries like children from a previous marriage.
Under tenancy in common, each owner has a separate and transferable interest in the property. This option provides more flexibility for estate planning, as you can dictate who inherits your share of the asset, including children from a prior relationship.
Updating Beneficiary Designations
Don’t overlook assets like life insurance policies, retirement accounts, and other financial instruments that require a named beneficiary. Ensure that these designations are updated in line with your current wishes and family structure.
Durable Power of Attorney and Healthcare Proxies
Blended families should not neglect to appoint individuals responsible for making financial or healthcare decisions in case of incapacitation. The dynamics of a blended family can make these decisions more complex, as biological and step-children may have different views about what is in your best interest.
Estate planning for blended families may be complex, but with careful planning and professional advice, you can create a financial legacy that honors all relationships, whether biological or forged by marriage. The intricacies of a blended family necessitate a well-thought-out estate plan that incorporates strategies to protect your assets and provide for all loved ones equitably.
Employ a combination of Wills, Trusts, Prenuptial Agreements, and carefully considered asset titling to achieve this goal. Always consult with a qualified estate planning attorney to tailor these tools to your family's specific needs. And remember, an estate plan is a living document that should be reviewed and updated regularly, especially when there are changes in the family structure.
Richard P. Breed, III is a partner at Tarlow Breed Hart & Rodgers, P.C. in Boston, Mass. Please connect with Rick at www.linkedin.com/in/rick-breed/
