Preparing a will and estate plan for a blended family can be complicated, and strain family relations. These days, many families include children, stepchildren, former spouses and in-laws. The number of remarriages has been steadily rising over the past few decades. By some accounts, in 2013, 40 percent of marriages included at least one spouse who had previously been married, and in 20 percent of remarriages, both spouses had previously been married.
Such situations require estate planning with clearly understood goals. The biggest issue in blended families is typically, “where will my money go when I die?” In many cases, remarried couples want to ensure that the surviving spouse will be appropriately cared for upon the death of their partner—with the children from their previous marriages becoming the ultimate beneficiaries of the assets their parents brought to the marriage. The challenge comes from designing a plan that will keep all parties satisfied.
One of the biggest and most common mistakes people make when determining who will inherit their assets is in the beneficiary designations on retirement accounts and insurance policies. That is because beneficiary designations apply regardless of what your will might say. For example, if your will states that an IRA account is to go to your spouse, but you have named your child as primary beneficiary on the account with the bank/broker, then the IRA will go to your child.
Another common mistake occurs when a spouse names their partner as primary beneficiary and the children as equal contingent beneficiaries, believing that everyone will get something. However, the primary beneficiary will receive all the assets, and will then be free to act however they may wish. Contingent, or secondary, beneficiaries are only entitled to the assets if the primary beneficiary has predeceased. One way to avoid this problem is to name each beneficiary as primary, and designate the percentage of the asset each will receive.
Trusts, either revocable or irrevocable, can also be an effective planning tool. For example, a husband could set up a living trust in which the surviving spouse will receive income for life and the remainder of the trust will go to his children after she passes.
Drafting an estate plan by no means ensures a smoothly blended family, however it is very important to have meaningful and ongoing communication among all concerned parties, and to make a plan for the future.