Second marriages are fairly common in today’s world. Although it’s wonderful that two people have found one another, the second marriage can be complicated as it relates to financial planning. Sometimes one, or both, spouses have children from a previous marriage, and may even have children together. This blended-family experience presents unique challenges to ensure that a surviving spouse and the various children are treated appropriately after the death of a spouse.
The key to developing an appropriate estate plan is communication. Be sure to spend time together discussing each of your concerns and desires. These conversations about the financial assets, concern for the well-being of each spouse, and the desire to distribute assets through your respective bloodlines can be emotional and difficult; however, spending this valuable time, and being honest, will go a long way to ensure the appropriate strategy is developed. We recommend involving your financial planner or estate attorney in these initial conversations to help understand some of the possible solutions.
Here are some tips that should be considered:
- Beneficiary Forms – It is likely that you may have a significant amount of life insurance and retirement plan assets; It is important to ensure that the beneficiary designations holistically coordinate with your entire estate distribution strategy. For example, it might make sense to leave the life insurance proceeds to children from a previous marriage, while leaving the retirement plan assets to the surviving spouse in order for him or her to rollover to their name. In any event, these will need to be updated but coordinated with your new estate planning documents.
- Trusts – These instruments can be very useful when constructing an estate plan to benefit the surviving spouse, and the children from previous and current marriages. It is possible that the assets you accumulated can be maintained to generate income for the surviving spouse, with distributions of principal restricted to certain needs (health, maintenance, welfare and education) once the surviving spouse has depleted their assets. Ultimately, however, the remaining principal is distributed to the desired beneficiaries of the grantor.
- Financial Powers of Attorney – This document would allow for a trusted individual to manage your financial affairs in the event of your incapacitation. Be sure to revoke the previous document from prior marriage(s), and execute a new document naming those you feel have the ability to take on those responsibilities.
- Healthcare Directives – This document would indicate how you feel about life sustaining measures and end of life decisions. In addition, the Healthcare Power of Attorney would give power to a trusted individual to implement your desires, in the event you are unable to do so yourself. Again, it is important to revoke any prior directives.
These are just a few considerations as you plan for the orderly distribution of your estate and the handling of your financial affairs. Certainly, every blended family is different and presents its own unique challenges and opportunities. Please work with a qualified financial planner and estate planning attorney to ensure that your plans are implemented.