Modern Family: Estate Planning Considerations for Clients with Blended Families

Blended families are those that include children from previous relationships, as well as spouses and sometimes stepchildren. According to some statistics, more than 50 percent of Americans have been or will be part of a blended family at some point in their lives. Blended families can face unique and complex challenges when it comes to estate planning, such as:

• • The risk of disinheriting children from a prior marriage
  • The delay of inheritance for children until the death of the surviving spouse
  • The need to protect assets from former spouses or creditors
  • The potential for disputes over the division of authority or responsibility among family members

To avoid these pitfalls and create an estate plan that reflects your wishes and protects your loved ones, you should consider the following steps:

1. Communicate clearly and openly with your family members. Explain the reasoning behind your estate planning decisions and listen to their concerns and expectations. You may want to have a family meeting with your spouse, children, stepchildren, and other beneficiaries to discuss your goals and values. This can help prevent misunderstandings, resentment, and conflicts in the future.

2. Support both your surviving spouse and your children. You may want to provide for your spouse’s financial needs while also ensuring that your children receive a fair share of your estate. You can do this by using various estate planning tools, such as:

• • A marital trust, which can provide income and principal to your spouse during their lifetime and then distribute the remaining assets to your children upon your spouse’s death.
  • A qualified terminable interest property (QTIP) trust, which can provide income to your spouse for life but restrict their access to the principal. You can also specify how the principal will be distributed among your children after your spouse’s death.
  • A life insurance policy, which can pay a death benefit to your spouse, children, or both, depending on how you name the beneficiaries.
  • A retirement account, which can allow you to name multiple beneficiaries, such as your spouse and children, and provide them with tax-deferred or tax-free income.

3. Use prenuptial or postnuptial agreements (which were only recently permitted under Ohio law) to clarify your rights and obligations regarding your assets and debts. These agreements can help you define what is considered separate or marital property, how property will be divided in case of divorce or death, and whether spousal or child support will be paid or waived. These agreements can also override the default rules of your state’s laws regarding inheritance and community property.

4. Establish trusts and update beneficiary designations to ensure that your assets are distributed according to your wishes. Trusts can offer many benefits for blended families, such as:

• • Avoiding probate, which can be costly, time-consuming, and public.
  • Providing asset protection from creditors, lawsuits, or former spouses.
  • Allowing you to control how, when, and to whom your assets are distributed.
  • Reducing estate taxes by removing assets from your taxable estate.
  • Preserving eligibility for government benefits for disabled or special needs beneficiaries.

You should also review and update the beneficiary designations on your life insurance policies, retirement accounts, bank accounts, and other assets that pass outside of your will or trust. Make sure that they are consistent with your overall estate plan and reflect your current family situation.

5. Consider providing for your stepchildren if you have a close relationship with them or if you want to treat them equally with your biological children. You can do this by naming them as beneficiaries in your will, trust, life insurance policy, or other assets. However, you should be aware that stepchildren do not have the same legal rights as biological or adopted children when it comes to inheritance. For example, they may not be entitled to a share of your estate if you die without a will or if you disinherit them in your will. Therefore, you should make your intentions clear and explicit in your estate planning documents.

6. Consider how to blend your assets and property with your spouse’s assets and property. You may want to keep some assets separate or jointly own some assets with your spouse, depending on your goals and preferences. For example, you may want to keep your home or business separate if you want them to pass to your children from a prior marriage. On the other hand, you may want to jointly own bank accounts or investment accounts with your spouse if you want them to have access and control over them.

7. Review and update your estate plan regularly to reflect any changes in your family situation, such as marriage, divorce, birth, death, or relocation. You should also consult with an experienced estate planning attorney who can advise you on the best strategies and options for your blended family.

Estate planning for blended families can be challenging but rewarding. By following these steps, you can create an estate plan that honors your spouse, provides for your children, and minimizes potential conflicts among your family members.  For more information on planning for your own “modern family,” you can contact John Tullio at (216) 621-7860.

Watch the video