Estate Planning for Blended Families, Part II
In Part I, we discussed why you should speak to an estate planner as early as possible when you decide to get married a second time, preferably before you do so. Failure to do so could actually result in adding even more stress to your family than they will already feel after you pass on.
In Part II, we will get into the ways an estate planning lawyer can protect everyone in your family, especially the children from your previous marriage. We'll start with trusts.
Trusts are a great way to transfer money and property to loved ones, especially if you are bringing significant assets to your new marriage. By setting up a separate property trust even before you get married, you can make sure the assets in that trust end up with the beneficiaries they choose. You could make your current spouse the beneficiary of the trust until they pass away, and then your children, or you could even distribute the separate property directly to your children. Either way, by doing this, you have established that the property in that trust is not part of the marriage, and is handled separately from the marital assets.
Even if you choose not to set up a separate property trust, you should establish a joint trust with your spouse; one that includes built-in protections for the children. For example, when the first spouse dies, have of the couple's assets are then placed into an irrevocable trust for the benefit of the surviving spouse, which will provide that spouse with enough income to cover living expenses and then some, while the principle will be reserved for the children of the deceased spouse. While such a trust will incur some administrative time and costs, the peace of mind it provides could make it well worth it.
In addition to setting up trusts, you'll need a durable power of attorney. With a durable power of attorney, you will have a chance to name someone you trust to manage all of your financial and legal affairs after you're gone, or while you're still alive, if you become incapacitated. The only additional advice here is to make sure all previous powers of attorney are revoked (especially if the person named was a previous spouse, and especially if you don't trust her). You should execute an updated power of attorney naming your spouse, your children or another trusted individual as your agent.
Just as important as a durable power of attorney, if not more so, is creating a health care directive. That will allow you to name a specific person you trust as the person you want to make health care decisions if you find yourself unable to. Setting up a health care directive and keeping it up-to-date is enormously useful for doctors when there is an emergency, and it also gives you an avenue for discussing your feelings about certain types of health care and such issues as end-of-life care, organ donation and burial arrangements with your new spouse and anyone else you might want to be aware.
There are a number of other things you can include in an estate plan that are not only very useful for making sure your wishes are carried out when you pass away, but which can also make your new spouse more aware of what and who matters to you.
For example, if you have a significant amount of wealth tied up in life insurance policies and retirement accounts, the beneficiary forms are very important to keep updated. You should consider several things when you look at including these with your estate plan. For example, never name minors on your beneficiary forms for such accounts. Since minors are not able to control such assets legally, the court may appoint a guardian to administer them until age 18, and it may not be someone you trust, like your ex-wide. Your estate planning attorney can offer you strategies for allowing your minor children to benefit from your life insurance or retirement plans without getting the court involved.
Estate planning may also be the perfect opportunity for you and your new spouse to get to know more about each other, by sharing details about each others' financial assets. Quite often, people have small life insurance policies tucked away that they forgot about, or a small savings account they opened as a teen and forgot about, or an old retirement plan they forgot about from a job they left years earlier. Estate planning creates an ideal opportunity to share that information, as well as to make changes or transfer those accounts. Not only that, but it will mean a few less things for your heirs to investigate after you pass away.
You can also use it as an opportunity for your new spouse to learn more about your family and old friends, by supplying them with names, addresses, phone numbers and other contact information with each other, so that you each know who to contact in case of emergency. Not only that, but it will likely trigger some great memories you can share.
Blended families present a number of challenges, and every one is different, but setting up a good state plan with a trusted estate planning attorney can get you through the worst of it and leave you with a lot more peace of mind.
