There are many common sense and estate planning mechanisms that can be utilized to simplify what would otherwise be a complicated situation in ensuring that all loved ones within the blended family are provided for.
Most people value open and honest communication. Parties to a marriage often value this attribute as a means of ensuring a happy co-existence. Open and honest communication can help greatly when it comes to planning for the ultimate distribution of property and effectuating those plans. A wise idea is to have an honest open conversation with your new spouse about your existing finances, goals for the future and how you would like your assets to distributed upon your passing. While this ultimately may be a difficult conversation, it will ensure that each spouse has the opportunity to voice their preferences and therefore setting expectations accordingly. If adult children form part of the blended family, it may also be wise to include them in the conversation.
2. Review Current Beneficiary Designations
Review any beneficiary designations you have made on insurance policies or retirement accounts. Many people forget to change their beneficiary designations when they get divorced or remarried, so make sure your accounts and plans and insurance beneficiaries are up-to-date with your wishes. You may be surprised at what you find.
Think comprehensively about these accounts and your other estate planning documents. For example, you may want to provide a death benefit through a life insurance plan for your spouse, while allowing the rest of your estate to pass to your children. It is extremely important that you do not name minors on your beneficiary designations as they will not have legal control of the assets until they reach 18 year olds and the court may appoint a guardian to manage the assets for your minor children in the mean time. Speak to your estate planning attorney about making provision for your minor children, if you so wish, through beneficiary designations of life insurance or retirement accounts.
3. Update/Put in Place a Durable Power of Attorney
If you already have a durable power of attorney in place, make sure that if your prior spouse was your designated agent, that this provision is changed. Execute an updated power of attorney, naming your spouse, your children or another trusted individual as your agent. A durable power of attorney is a powerful document. It gives you the opportunity to name a trusted individual to manage your financial affairs and legal decisions during your life if you are not able.
4. Update/Put in Place an Advanced Healthcare Directive
Similar to a power of attorney, a health care directive allows you to name someone you trust to make decisions about your health care when you are not capable yourself. An updated health care directive is always helpful for medical professionals in the event of an emergency. This also gives you a chance to discuss your feelings about your end-of-life care, organ donation and burial arrangements with your new spouse.
5. Put a suitable Trust in Place
While many couples are content with an informal agreement with their spouse that all children will be treated equally upon one’s passing, it is wise to understand that the surviving spouse has no legal obligation to leave assets to the first-to-die’s children of the second spouse's passing.
i. Separate Trust
If one of you brings significant assets to the marriage, it could be wise to prepare a separate property trust to ensure that those assets ultimately end up with your chosen beneficiaries. You may make your current spouse the beneficiary of the trust until their death and then your children. Or you may have your separate property distributed directly to your children.
ii. Testamentary Trust
Another viable option is to put in place a testamentary trust that become irrevocable upon the death of the first spouse. The testamentary trust could provide for the surviving spouse during his or her lifetime and upon the death of the surviving spouse, the remaining trust assets could pass equally to the children of the deceased spouse. The benefit of this type of trust is that is provides both for the surviving spouse during his/her lifetime and then the remaining assets get passed to the children of the first spouse to die upon the death of the surviving spouse. This kind of trust does require some administrative time and costs, but they are well-worth the peace of mind provided.
Every blended family is different and each presents its own set of challenges, both legal and personal, but a trusted attorney can help guide you through the process and achieve your goals.