How Do I Avoid Estate Planning Mistake with a Blended Family?
The Wealth Advisor’s recent article entitled “Remarried With Children? 5 Estate Planning Mistakes to Avoid” says that you can’t guarantee that everyone in the blended family will be happy with the arrangements you’ve made with a second marriage.
Estate Planning Mistake #1: Failing to change beneficiaries. With a beneficiary designation (such as with life insurance policies, IRAs, 401ks), the money passes directly to your intended beneficiary without probate. Look at all of your financial accounts to be certain that your spouse is designated the beneficiary if that’s what you want. Check your life insurance beneficiaries because these payouts also bypass probate.
Estate Planning Mistake #2: Failing to update your last will. Your last will determines much of who gets the assets you and your spouse accumulated during your lifetimes. You probably don’t want your ex-spouse to get these. People on their second marriage frequently decide that the surviving spouse gets all the assets; upon the death of the second spouse, the remaining assets will be divided evenly among all of the children. There are ways to make that happen, but it takes very special legal planning.
Estate Planning Mistake #3: Treating all heirs equally. Most spouses aren’t financial equals when they marry, and this is particularly so in second marriages. If your new spouse moves into your house, for example, you may want your children to get the proceeds when it’s sold, not your spouse or your spouse’s children. There are many reasons why parents don’t treat children equally, including when there’s a child who’s disabled or has special needs. A child may also suffer from an addiction and require a trust that provides stipends at regular intervals to the beneficiary and deters creditors from getting money in the trust.
Estate Planning Mistake #4: Failing to give while you’re still alive. If you’re planning to leave money to your kids, you might think about giving it to them now.
Estate PLanning Mistake #5: Failing to work with an experienced estate planning attorney. If you’re older and on your second marriage, your life is probably complex with ex-spouses and children and stepchildren. Blended families and comingled assets make things complicated, as does a child with special needs or an aging parent. An experienced estate planning attorney can work through all of your issues and make sure you have the best and most comprehensive plan for your circumstances.
Estate Planning Bonus Mistake #6: Leaving everything to the surviving spouse. Sometimes couples will agree that they leave everything to one another, and then the survivor (who would then own everything) will treat the predeceased spouse’s children from a prior marriage equally. In my experience, unless you trust your spouse implicitly to do this, this can be a mistake. This is because the survivor has every right to modify is or her will after your death to leave everything to the survivor’s children. A better way to establish this “deal” between the spouses is through a living trust established during your lives instead of joint wills.
Other articles that you can read on this topic include these: Planning for Blended Families and Blended Families Create Estate Planning Challenges and Blended Family Estate Planning.
Reference: The Wealth Advisor (July 12, 2021) “Remarried With Children? 5 Estate Planning Mistakes to Avoid”