Estate Planning With a Blended Family

Are you in a marriage and have children from a previous relationship? If so, you’re considered a “blended family” and may have some unique estate planning needs. That’s because a standard estate plan that leaves the bulk of your assets to your current spouse could leave your children from a previous relationship cut out of their inheritance if your spouse passes those assets on to their own children and relatives. Here are the pros and cons of some ways to address the problem:

1) Leave the assets to your children in your will and beneficiary designations.

  • Pro: This ensures your children will get what you want to leave them.
  • Con: You may want to leave more of those assets to provide for your current spouse. Your children from a previous marriage may not get anything you do leave to your current spouse.

2) Draft a trust to provide income from your assets to your current spouse with the remainder passing on to your children after their death.

  • Pro: Your current spouse can benefit from the income from your assets, while your children can inherit what you want to leave them. The trust can also avoid the time and cost of probate and can even be structured to minimize estate taxes.
  • Con: Drafting a trust can be expensive, although you might be able to reduce the cost if your employer has a prepaid legal plan that includes estate planning. You may also want your spouse to have access to more than just the income from your investments.

3) Leave the assets to your current spouse with the mutual understanding of how those assets will be passed on after their death.

  • Pro: This provides the most flexibility and avoids the cost of drafting a trust.
  • Con: It may be too flexible in that your wishes are not legally binding and may not be carried out.

4) Buy a permanent life insurance policy for your kids from your first marriage.

  • Pro: Allows you to leave everything else to your spouse, without worrying whether he/she will leave anything to your kids that you don’t share.
  • Con: This only works if you are healthy and able to obtain the insurance as well as pay the premiums for the rest of your life.
  • Some people use a trust to own the life insurance as an additional layer of ensuring the proceeds of the insurance are used for the best interest of their kids — consult an estate planning attorney to see if that added layer makes sense in your situation.

The Bottom Line

There’s no one right answer here. As with most estate planning, the important thing is you give your wishes some thought, ideally in conjunction with your spouse, and get them in writing. Whatever you do, don’t wait too long. By the time you need estate planning, it will be too late.

Tip content provided by: Brian Kelly at Financial Finesse

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