Create the Right Estate Plan for Your Blended Family

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In the modern world, blended families, those combining children from previous and current relationships, are almost as common as the traditional nuclear families. But these families encounter distinctive challenges when it comes to estate planning.

Estate planning usually begins with drafting a will. However, in blended families, designating an unbiased personal representative often requires more thought compared to traditional families, where the eldest child might be the typical choice. The will should also incorporate the nomination of a guardian for minor children, along with the assignment of a power of attorney and healthcare proxy in case of incapacitation. Traditional wills, while suitable for asset distribution in standard families, might not fully cover the complexities of blended families. This is where trusts might offer more flexibility and control.

Keep in mind that wills do not determine beneficiaries for life insurance policies, retirement plans, or jointly owned properties. Plus, they are subject to probate, a potentially drawn-out and expensive process which could open the door for legal disputes. Furthermore, wills become public documents once probated, which might be undesirable if there’s information that your family wishes to keep confidential.

Trusts can offer a solution to these issues. They provide enhanced control over how your assets are managed and distributed, and importantly, the details within a trust remain private. There’s a wide array of trust types tailored to meet specific objectives. A Qualified Terminal Interest Property Trust (QTIP), for example, can supply income to a surviving spouse, while bequeathing the remaining assets to children or grandchildren.

Another form of trust, known as a Generation-Skipping Trust (GST), is structured to bypass a generation and pass assets directly to grandchildren or those at least 37.5 years younger than the grantor. This approach may be preferred to preserve wealth within the family, especially in instances where adult children have married.

An alternative strategy involves assigning an IRA Legacy Trust as the beneficiary of an IRA, rather than individual family members. This can offer creditor protection, which might not always be guaranteed to those inheriting an IRA directly. The account holder could also utilize the IRA’s required minimum distributions (RMDs) to support a second spouse during their lifetime, leaving the balance to their children.

For couples venturing into a second or third marriage, frank discussions about their expectations concerning what each spouse will inherit upon the other’s death or in case of divorce are crucial. Such commitments and any agreement to refrain from contesting them can be legally documented in a prenuptial agreement. Sometimes, these contracts might require each spouse to maintain life insurance on the other, ensuring liquidity either from the policy’s death benefit or its cash value.

Lastly, it’s paramount to ensure all documentation created is comprehensible, transparent, and succinct. Make it a point to specify the full names and birthdates of beneficiaries in wills, trusts, and life insurance policies, so they are readily identifiable and cannot be confused with others. Remember, estate planning isn’t a one-time event; it’s an ongoing process that should be reviewed regularly to ensure it remains aligned with your family’s changing needs and goals.

If you or a loved one needs assistance with estate planning, do not hesitate to BOOK A CALL using our calendar. We are here to help.