There can be an extra layer of complexity when it comes to estate planning for blended families. The assets involved, the number of children and their ages, and family dynamics all play a role.
As with any estate planning effort, communication is key. There are lots of decisions to be made, and that requires open conversation among all family members.
Here are five things to consider with estate planning for blended families
Decide between joint trust or separate trusts
A joint trust puts all marital assets into a single trust, whereas separate trusts will split the assets into two. State law, an existing prenuptial agreement, and how the assets are titled can all impact the option of a joint or separate trust. In some cases, blended families choose separate trusts so that each spouse’s children receive benefits from their parent. Other times, families choose a joint trust because it’s simpler to manage and they have a shared plan for how they want to divide their assets.
Choose a successor trustee
Choosing a trustee can be a challenge for anyone in the estate planning process, and that’s true for blended families as well. If you choose separate trusts, each person can choose their own trustee. If using a joint trust, you may want to name one child from each family to serve as co-trustees. Another alternative is to use a corporate trustee (i.e. a bank trust department or a trust company) to administer the trust rather than a family member.
Discuss division of assets and spousal control
Whether using an individual trust or a joint trust, you’ll need to decide how assets are divided. Will they be divided individually along family lines or lumped together and distributed equally? Can the surviving spouse change the plan after the death of the first spouse? How much flexibility will the surviving spouse have over the named beneficiaries?
Another consideration in this area is what assets can be used to pay for long-term care. If one spouse needs care in a nursing home, are all assets available to pay for that care? Or will some assets be reserved?
Each family is different when it comes to division of assets and spousal control. Some couples are less concerned about an inheritance for their children and focus more on ensuring their spouse is covered, while others want to prioritize leaving assets to their children.
Make sure retirement accounts are part of the plan
In many cases, the spouse is the first beneficiary on a 401k, IRA, or other retirement account. If one partner dies and the retirement account goes to the surviving spouse as beneficiary, those assets have now crossed sides. As you create your estate plan, make sure your primary and secondary beneficiaries are updated for all retirement accounts and that you understand how those funds will be distributed.
