26 Jul Estate Planning and Blended Families
Blended families, or families that include a stepparent, stepsibling or half-sibling, are common. In fact, according to a Pew Research Center study, 16 percent of U.S. children live in a blended family. When it comes to estate planning, the needs of blended families differ from the needs of more traditional families. Make sure the special estate planning needs of your blended family are met by utilizing the following tips.
Discuss your decisions in advance
Everyone, regardless of if they’re from a blended family or not, should discuss their estate planning decisions in advance. Not only does discussing your decisions provide your loved ones with insight into why you’ve made certain choices, but it is also protects against hurt feelings down the road. A death in the family is stressful, as is terminal illness or the incapacitation of a loved one. Family members can get angry towards one another when dealing with the emotional and logistical fallout of a stressful situation. This can create problems and result in arguments.
For example…
John Smith and his second wife, Jane, have been married for ten years. The couple has children together, and John has an adult son from a previous relationship. John was recently in a car accident and is incapacitated. His legal documents name Jane as his medical power of attorney. Charlie, John’s son from his previous marriage, is upset his stepmom is his dad’s POA. Charlie feels that Jane doesn’t know what his dad would really want in this situation. Jane and Charlie fight about it, and the whole situation becomes more stressful with the added family tension.
If John explained the reasoning behind his decision to name Jane as his POA in advance, odds are Charlie wouldn’t be upset. The extra stress wouldn’t be added to the situation, and the family wouldn’t worry about taking care of John while dealing with arguments. This type of interfamily conflict doesn’t just occur in blended families. However, with different types of parent/child and sibling/stepsibling relationships, blended families should take extra care to explain all legal decisions to everyone.
Define fair and plan accordingly
When it comes to leaving an inheritance to heirs, everyone has a different opinion. Some people opt to donate everything to charity. Others want to pass as much financial support as possible down to their heirs. Regardless of how you define fair in terms of inheritance, it’s important to plan accordingly. This is especially true for members of blended families. Often times, couples set up their estate plan to have everything go to their spouse if he or she survives them. Then, once the surviving spouse passes away, assets are typically left to the couple’s children or grandchildren. This setup can cause problems for blended families, however.
For example…
Dan and Deb’s estate plan is set up to have all assets go to the surviving spouse if one of them dies first. Then, assets will be divided equally among the couples children and stepchildren. Dan is 65 years old. Deb is 35. While there’s no way to predict which one of them will pass away first, odds are pretty good that Deb will survive Dan. This means that Dan’s children from his previous relationship – who are roughly the same age as Deb – will not receive their share of inheritance for years, which is potentially problematic.
If Dan and Deb see this setup as fair, then there’s no problem. However, if Dan prefers that his older children receive their inheritance following his death, he should create a workaround using his legal documents. For example, Dan could figure out each child’s fair share and name his adult children as beneficiaries on a life insurance policy or some other accounts. That way, they receive their share of inheritance outside the probate process. Deb can then use her plan to take care of the couple’s younger children without having to worry about Dan’s older children.
Using a workaround may seem odd, but it adds a layer of protection for everyone. This is because when someone inherits assets, the assets officially become theirs. Any previous plan for distribution can be thrown out the window. So, say Dan died first and left everything to Deb. In the years following Dan’s death, his adult children and Deb had a falling out. Deb updated her estate plan accordingly and is now leaving nothing to Dan’s adult children, even though he would’ve wanted them to receive a share of what she inherited from him. Deb’s decision is legal.
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