Blended families may require more strategic estate planning.
Many men and women in the United States get married, divorced or widowed, and remarried.
As a result, families often consist of yours, mine, and ours children.
While many families thrive with more members and more love, more people can also mean more complications.
According to a recent AARP article titled “Remarried With Children? 5 Estate Planning Mistakes to Avoid,” estate planning for blended families can be especially complex.
Nobody wants to jeopardize the financial future of their loved ones.
Unfortunately, this often happens when trying to both support a spouse and children from a variety of marriages.
What are common estate planning pitfalls for blended families?
Not changing named beneficiaries.
When you were previously married, you likely had the name of your former spouse as your primary beneficiary on your 401(k), life insurance policy, or other assets.
Review these documents and update the beneficiary, accordingly.
If you fail to do so, your ex could inherit the bulk of your estate.
Designating your children as successor beneficiaries directs the assets to your children if both you and your current spouse die.
As you review your beneficiary designations, you should also update your financial power of attorney and medical power of attorney documents.
If you become incapacitated, you will likely prefer your current spouse over your ex-spouse when it comes to making your health care decisions (can you say “pull the plug” decisions) and managing your finances.
Not updating your last will.
Much like your beneficiary designations, your last will and testament should be reviewed and updated.
When revising your last will and testament, you should carefully consider “the objects of your bounty,” as we learned it in law school.
Many people leave everything to their new spouse and assume the remaining assets will pass to surviving children when the spouse dies.
Often this does not happen within blended families.
Once the surviving spouses inherits the assets, that spouse can completely rewrite their own last will and beneficiary designations to disinherit the children of the decedent spouse.
Working with an experienced estate planning attorney can help you create a comprehensive plan to avoid this scenario.
Treating all heirs equally.
Although you love all of your children, you do not need to leave them the same amount of money or the same assets.
You may have had more money entering the marriage.
Your family may have moved into your own family home.
If you intend for these assets to be inherited by your personal blood relatives, your step-children will receive less.
This is common for many blended families.
Waiting to give until you have passed.
Gifting assets and money to your heirs while you are alive can help you to decrease your taxable estate.
In blended families, there are often more people to receive such gifts.
At this time, you can give up to $15,000 as an individual or $30,000 as a couple to each recipient without owing a federal gift tax.
Under current law, the recipient will not own taxes either until the asset is sold.
If your estate value is likely to exceed the estate tax threshold in effect when you die, this can be a smart way to remove tax liability.
Doing it yourself.
Creating your own estate plan can be problematic under simple circumstances.
Blended families are inherently complex.
They involve ex-spouses, multiple marriages, and both jointly and separately owned assets.
Working with an experienced estate planning attorney will help you navigate the laws of your estate, your family dynamics, and other important factors.
Reference: AARP (July 9, 2021) “Remarried With Children? 5 Estate Planning Mistakes to Avoid”