In today’s world, it’s not uncommon for a family to include children from previous marriages. In fact, according to the U.S. Census Bureau, blended families now outnumber what are often considered “traditional” ones.
Whether through remarriage, divorce, or other circumstances, blended families create unique situations that require careful planning. For these types of family situations, estate planning is complicated and without proper planning, can often lead to difficult challenges and damaged relationships after a family member’s death. To avoid a negative outcome and maintain family harmony, it’s wise to plan ahead by using specific estate planning strategies designed to preserve your assets for your heirs.
4 estate planning techniques for the modern blended family
A will is an essential part of financial planning and the foundation of most estate plans. This crucial document determines who gets what, when, and how much. You can always tweak it later with addendums as members join your family, but for significant changes — such as adding a new spouse or removing an ex-spouse — a new will should be drafted that reflects your current wishes. To learn more about when you should update your will, click here.
- Living Trust
While we at MGA recommend that you have a will in force, it’s important to note that after your death, it will need to pass through probate, which can be a time-consuming and costly process. Instead, you may choose to transfer your assets to a living trust, which is typically regarded as a supplement to rather than a replacement for a will. A living trust allows you to designate certain members of your family as beneficiaries, exempting those assets from probate. A revocable living trust is the most common type of living trust, enabling you to make changes both to your beneficiaries and distribution amounts.
- Prenuptial Agreement
A prenuptial agreement, or “prenup,” is a contract generally entered into between you and your future spouse before marriage, outlining the rights of each party to the other’s properties. It also controls how assets will be divided upon divorce or death, ranging from retirement plans to art collections. While many people believe that prenups are only for the wealthy, this agreement can bring numerous benefits to all types of marriages. In a blended family in particular, prenups are often used to protect assets for children from a prior marriage and to help define the financial future of the new family.
- Marital Trust
A marital trust can be customized to meet the specific needs of blended families and is generally used to benefit the surviving spouse. It may provide income for the surviving spouse or ensure that children are the eventual beneficiaries of an estate after the surviving spouse dies. Also, if certain tax elections are made, the estate tax due at a person’s death can be delayed until the death of the surviving spouse.
A unique solution for each unique family
While there is no one-size-fits-all solution when it comes to estate planning for blended families, we want to make sure you are informed about your options and take the time to plan for the future of your blended family carefully. We’ve described four estate planning techniques here, but you may choose to take advantage of other options, or variations of these four, for your own particular situation.
Whatever your unique, individual needs, don’t hesitate to reach out to your team at MGA with any questions or concerns. We offer a wide range of advisory and consulting services, and we are here to make your complex situations simple.