Estate Planning Tips for Blended Families
Families come in all shapes and sizes, and their unique qualities make them beautiful. One type of family structure that is increasingly common is the blended family, which consists of a couple and their children from previous relationships. As blended families become more prevalent, it is crucial to recognize their importance in financial planning. In the US, 40% of families are blended, with at least one partner having a child from a previous relationship, according to Love to Know website.1
Much like families, estate planning is not one-size-fits-all. In this regard, it is essential to examine your estate plan, particularly if you have a blended family.
Verify Your Beneficiaries
Throughout our lives, numerous changes may occur, such as the loss of a partner, divorce, or the birth of biological children or marriage resulting in bonus children. As a result, verifying your beneficiaries regularly and making any necessary changes to your will is crucial. For instance, some individuals with blended families may have their ex-spouse still listed as the primary beneficiary on accounts such as a 401(k).
It is essential to verify that your beneficiaries are correct since your assets will be directly transferred to them without probate upon your passing. Failing to update your beneficiary list could cause legal and financial difficulties for your family.
Be Specific in Your Will
Blended families often have unique and complex interpersonal dynamics, which should be taken into account when creating your will. While you may choose to leave your assets to your surviving spouse, can you be certain that upon their passing, all remaining assets will be distributed equally among your children, including stepchildren?
It's important to consider possible conflicts that may arise, such as tensions running high and your surviving spouse creating a new will that excludes your side of the family. These scenarios may be uncomfortable to consider, but it's necessary to do so when planning your estate.
Along with your remaining monetary assets, sentimental items may also be included in your will.
Regulate the Flow of Money
Blended families can be wonderful for bringing together individuals with diverse interests, passions, and aspirations. However, such families may also face situations where an heir may need greater control over inherited assets, such as a child or stepchild with a gambling problem who may squander their inheritance. In such instances, setting up a spendthrift trust may be a viable solution.
As per the Trust & Will website, a spendthrift trust restricts a beneficiary's access to assets, providing them incremental funds instead of a lump sum. This serves as a safeguard against poor spending habits. Furthermore, since the inheritance belongs to the trust and not the beneficiary, creditors cannot go after it while it is still held within the trust.2
Just like families, each estate plan is unique. It is crucial to establish your estate plan correctly to ensure that your assets are distributed as desired when you pass away. This is especially important for blended families, where you must ensure that the intended beneficiaries inherit your assets.