“Yours, Mine and Ours” was the title of a cute movie regarding parents who marry with children from a previous marriage. However, in real life, it can be a complicated issue when it comes to Estate Planning. Studies show that in 2013, 40% of the marriages included at least one spouse who had already been married. And in 20% of those marriages, both spouses had been previously married. Such a combination of family members, including children, stepchildren, in-laws, ex-spouse’s, families and other issues really impact one’s Estate Planning.
One of the main questions in remarriage is “Where does my money go when I die?” In many cases remarried couples want to make sure that their surviving spouse is taken care of, with their own biological children becoming the eventual inheritors of their assets that they brought into the marriage. The tough part is in trying to balance the taking care of the surviving spouse and then the assets going back to your birth children.
One of the common mistakes people make is how they name the Beneficiary Designations on retirement accounts and insurance policies. Even a well-designed Estate Plan can be undone by incorrect Beneficiary Designations. The Beneficiary Designation will override any Estate Plan. By contract, it goes to that person you have named. If your Estate Plan directs that your assets go to your surviving spouse, but the IRA or Life Insurance Death Beneficiaries are your children, the asset will go to your children. One also wants to avoid a common mistake in leaving their ex-spouse as the Primary Death Beneficiary on an IRA, Retirement Plan, Insurance policy, or in their existing Estate Plan.
Remember the primary beneficiary receives all of the assets of the IRA, Retirement Plan, or Insurance Policy. The Contingent Beneficiary can only take the asset if the Primary Beneficiary is deceased or they “Disclaim” it.
It is possible to have multiple primary beneficiaries divided by percentages.
Using a Living Trust, aka Revocable Living Trust, aka Family Trust also can make the planning much more amiable. One just has to make sure that the assets are titled in the name of the Trust and that the Death Beneficiaries are appropriately named, which could include naming the Trust as the Primary Death Beneficiary.
If a blended family Husband and Wife use separate Living Trusts and name themselves as the original Trustee, the question is who do you name as the Successor Trustees? There can be a conflict between one of the adult children or the surviving spouse being the Successor Trustee. The surviving spouse may have an interest in getting a bigger return of income during their lifetime, if the assets are left for them for their lifetime. That may lead to a lower value in the investments left to the children after the surviving spouse’s death. On the other hand the adult children could want to invest in growth funds leaving the surviving spouse with little or no available income during their life. Often a professional third party trustee without a personal interest is a good option. Another issue is if one of the spouses is significantly younger than the other spouse. That spouse may not be much older than the adult children of the other spouse.
The design of a blended family Estate Plan is much easier if the couples made a Pre-Nuptial Agreement ahead of time, wherein they have decided what they are going to do with their assets. As Stephen Covey says, “Start with the end in mind.” That way the parties know what is to happen when one of them passes on. You are also trying to avoid creating a conflict between your surviving spouse and your adult children upon your death.
It is best to discuss and have your plans set out ahead of time. Often it is said that the three biggest challenges of any marriage are “money, sex and kids”. That will work the same way with a blended family. The money is always an issue as it provides for the overhead, comfort and flexibility of each party. It needs to be accounted for before the parties marry, while they are married, what happens when one of the parties passes on, and then what happens after both parties pass on. These are all issues that need to be thoroughly thought through as parties start into a “Blended Family”.
At the Law Firm of Steven Andrew Jackson, Attorney and Counsellor at Law, we have helped hundreds of families protect themselves and their loved ones, avoid Estate Taxes and Probate Costs, and keep their Estate Plans current with the law through The Customized Protective Estate Planning Solution™.