Most families put off estate planning, thinking they have plenty of time. But what happens if the unexpected occurs? Without a plan in place, your loved ones could face significant challenges during an already difficult time.
They may have to endure lengthy and expensive probate court battles, draining both time and resources. Disputes over inheritance could lead to family rifts that may never heal. The government could end up taking a bigger share through estate taxes, leaving less for your heirs. Worse yet, without clear instructions, your medical and financial wishes may not be honored.
We see it happen all the time—families left stressed, overwhelmed, and caught in legal battles over what their loved one "would have wanted."
Here’s the truth: The best time to plan was yesterday. The second-best time is today.
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Blended families have unique estate planning challenges. Families may include children from different marriages, children from the new marriage and requirements from prior divorce settlements.
Fairness Among Children from Different Marriages
How assets are divided takes a thoughtful approach, especially if spouses come to the marriage with different asset levels. If one spouse wishes to leave their assets solely to their biological children, trusts may take individually owned assets out of the couple’s estate and pass them to their named heirs. If children expect a substantial inheritance from an ex-spouse’s family, this may need to be taken into consideration.
Protecting a Surviving Spouse
Blended family parents need a will to protect the surviving spouse and the children. Absent a will, state law could create financial havoc. For instance, if half of the estate goes to the surviving spouse and the other half goes to the children and the children are minors, the family may be left with a court-appointed conservator in charge of the children’s inheritance while the surviving spouse struggles financially.
A surviving spouse can be protected using a will, trusts, or life insurance policies. Trusts allow the surviving spouse to control assets, while passing them to children upon the second spouse's death. One such trust is a Qualified Terminable Interest Property Trust (QTIP).
Clear Directives in all Estate Planning Documents
Wishes expressed in wills, trusts and beneficiary accounts must be aligned to avoid estate battles. Suppose an item is left in a will to one person. However, a beneficiary designation assigns the asset to someone else. The law is clear in that case: the beneficiary designation supersedes the will. However, the disparity may result in litigation.
Planning for Estate, Inheritance, and Income Taxes
While the federal gift and exemption tax levels remain high for now, there are also state estate and inheritance taxes to consider. IRA distributions are taxable to heirs. In most cases, accounts must be emptied within ten years. Heirs in high-income brackets could inherit a significant tax burden if they inherit a traditional IRA. Converting a traditional IRA to a Roth IRA might be a solution.
Address the Impact of Prior Marriages
If either spouse has divorce decrees with financial or other obligations, they should be examined for issues impacting the estate plan. If a parent is required to have life insurance to benefit the children, for instance, additional policies may be needed to protect the new family. Child support might be impacted by remarriage. A careful document review should take place.
Communication With Family Members, Young and Old
Understanding the parent’s wishes may be a little trickier for the blended family, making communication among family members even more critical than for traditional families. Keeping an open dialogue and encouraging conversations can help to prevent a blended family from fracturing.
Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends and favorite charities. For more information, be sure to visit our website where you can explore details about our firm, gain access to our informative blog and enjoy a complimentary newsletter subscription.
