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Every family has a unique culture which brings about unique challenges. In a blended family, determining what’s “yours, mine, and ours,” is an issue that is better addressed proactively, rather than reactively. Have these important talks with those who would be impacted in case of a death or disability. Doing so proactively helps to ensure that priorities and intentions are communicated before there is a misunderstanding or the loss of a loved one. Utilize this article as a blueprint or a checklist to help remove the emotion as you work through the myriad issues that need to be reviewed when you blend a family.
DiscoveryThe first step in developing an estate plan in a blended family is for you and your spouse to have a very open conversation to discover:
- Plans that you may have from previous marriages — To understand how previous arrangements might impact your new plan, you will need to review any plans that you have in place from previous marriages, including wills, trusts, beneficiary designations, guardianship, etc. For example, your current spouse may not be entitled to a retirement account if it was part of a divorce settlement specifying that it goes to your previous spouse.
- Goals and wishes — Each of you needs to clearly define your goals for upholding previous obligations, how guardianship will be handled for both biological and stepchildren, and how you want your separate or combined assets distributed. This is extremely important, because how assets are owned determines how they will be distributed in the future. For example, imagine if your spouse passes away and unbeknownst to you, all assets were left to the children from a first marriage, while you don’t have enough money to pay the monthly bills. Straightforward communication is the key to developing a blended estate plan.
- Together or separate — Commingling or keeping assets separate can depend on several factors a couple needs to decide. If one party brought in significant assets, you may decide to keep those separate while commingling assets that you build together. Children also play a major role in this decision. Maybe you already have college accounts or trusts established for your children from a previous marriage and those assets should remain separate. Many parents feel strongly about setting aside assets specifically for their children from a previous marriage. Again, forthright communication is key.
- Review the marital property laws in your state — Make sure you understand how your state laws govern the way you hold assets. For example, if you live in a community property state, any assets not identified as separate will be considered equally owned as community property of the couple, even if they were assets you intended to keep separate because they were acquired prior to the marriage.
DocumentationWhile you may feel it’s overkill, you need to document every detail of your estate plan to avoid potential issues down the line, especially if you have children and former spouses. Also, this legal documentation will help avoid the expensive and potentially emotional issues involved with probate court.
- Wills — You should create a will that provides clear instructions on how all of your assets are to be distributed, guardianship for minor biological and stepchildren, healthcare directives, and any other wishes to be carried out should either of you become incapacitated or die.
- Trusts — Blended families should consider developing a trust, which holds the assets on behalf of and defines how and when the assets pass to the beneficiaries. A trust can also last for years, through the lifetimes of a surviving spouse, children, and even future generations. For blended families, certain types of properly established trusts can provide financial support for your spouse and still make sure something is left for your children.
- Account titles — Even if you have a will or trust, you will also want to make sure that accounts such as a retirement account have defined beneficiaries. Additionally, other accounts can be owned as joint tenants with right of survivorship or transfer on death, making the owner’s intentions clear that the assets go directly to the party named on the account.
Copyright © 2020 This article is published in its original form from its original publication with Investment Answers and Integrated Concepts, a separate, non-affiliated business entity. The original newsletter publication, Investment Answers Financial Success Winter 2020, is intended to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete, evolving, or personalized analysis of the topics, and should not be construed as personalized investment advice. Qualified financial professionals should be consulted before implementing a personalized financial plan. Please reference the original publication for additional disclaimers.