Why Estate Planning Is So Important for Blended Families and Remarried Couples
Getting remarried and blending two families together can mark a new chapter of joy in life. However, it can also bring on some of life’s toughest challenges, especially when ensuring that your new family will be adequately cared for if anything were to happen.
Creating a new estate plan or reviewing and updating your existing one is the best way to ensure that all children in blended families are accounted for and protected. In the state of Alabama, it’s essential to make sure that your estate plan reflects the needs of your newly blended family since you may or may not be interested in legally adopting your new spouse’s children.
This article will discuss why estate planning is essential for blended families and remarried couples, your options, and which mistakes to avoid. So, keep reading to learn more.
What Makes Estate Planning Different for Blended Families and Remarried Couples?
A blended family is characterized by two couples coming together in marriage with children from a previous marriage or relationship. A blended family will typically have stepchildren, half-siblings, and extended family members living under the same roof. As you can imagine, blended families can make for quite a few people to account for and care for when it comes to estate planning.
Of course, remarried couples without children must also review and update their estate plan, primarily when ex-spouses are involved and have assets to protect.
Most importantly, in Alabama, illegitimate and non-biological children aren’t considered “next of kin” or heirs under the state’s succession laws. So, if you were to pass away without a will — which is referred to as dying intestate — the probate court would have to comb through your estate and divide your assets up in a specific sequence.
This sequence involves what the state and county consider to be your next of kin, which would be your:
Spouse
Biological and legally adopted children
Biological grandchildren
Parents
Siblings
The rest of your estate would go to the state, leaving out any non-biological and non-adopted children. This can create an issue if you are the surviving spouse responsible for taking care of the children from your blended family.
If you choose to remarry, it’s still important to review and update your existing estate plan with or without children. For example, you may have joint accounts, titles, and deeds with your ex-spouse in many cases. Or they may be named as beneficiaries in any previous wills or trusts. You may want to exclude your new spouse or another beneficiary from your will in other instances.
All of these things, plus wanting to ensure that you can continue to provide for your new family should something happen, is why estate planning for blended families and remarried couples is so important. They also make the process much different from planning for a non-blended family.
What Are My Estate Planning Options for My Blended Family and Me?
When creating an estate plan or revising your current plan for your newly blended family, the most important thing to consider is each individual family relationship. For example, one of the most common issues with the blended family structure is the concern over inheritance size, naming a reliable and trustworthy executor, and the fairness of the wills and trusts involved.
These things are both challenging and critical to address, which is why your Huntsville attorney will likely advise you on the following common estate planning options for blended families:
Family Trusts
A family trust is a testamentary trust that ensures all assets go into a combined trust following your death or your spouse’s death (whichever comes first). This type of trust is primarily beneficial because it allows the surviving parent of the blended family to determine how the assets within the trust should be distributed based on each child’s needs.
Testamentary trusts, in general, are created following a person’s last will to outline when certain assets are given to particular beneficiaries. Unlike a living trust, a testamentary trust doesn’t go into effect until the grantor (writer of the trust) passes away.
Marital Trusts
A martial trust is another type of trust that allows certain assets to pass on to the surviving spouse. However, it also works to earmark any residual assets for the children involved once a spouse has passed.
Marital trusts specifically allow both spouses to create a plan that includes all children in their family, whether they’re biological, adopted, or neither.
Outright Ownership
Outright ownership in an estate plan allows all the family’s assets to transfer directly to the surviving spouse. As a result, you won’t have to set up a trust (or trusts) for individual children with outright ownership.
However, it does require that each spouse trusts the other to properly account for the children upon receiving the assets.
Immediate Bequests
Another option that doesn’t require you to create trusts is to leave all of your assets with one specific child in your last will and testament. Immediate bequests work best when you’re the surviving spouse of a blended family or simply want to ensure that your children inherit your assets directly, without going through the surviving spouse.
Living Trusts
Unlike a testamentary trust, a living trust will go into effect on a specific date or in the event of a particular milestone, such as a graduation, marriage, firstborn child, and so on. In addition, living trusts can be revocable or irrevocable. This means you can either keep your ownership rights to your assets while still alive with the permission to make changes or completely dissolve them (revocable) or relinquish ownership of all rights to the assets within the trust and the trust account (irrevocable).
Living trusts are always recommended when you want to ensure that your beneficiaries will be financially taken care of should something happen without having to worry about probate court or an estranged family member attempting to contest your last will.
They’re also the perfect option when you want different assets allocated to other children and family members. For example, you and your spouse may each have children from previous marriages and choose to create your own trusts for your own children. Or, you may want to ensure that you pass on certain family heirlooms to your biological children while giving stepchildren or adoptive children financial security.
Ultimately, trusts give you flexibility regarding asset allocation on an individual basis.
Estate Planning Mistakes to Avoid When You Have a Blended Family
There are no guarantees that everyone will be happy with the arrangements of your newly blended family, especially when it comes to your estate plan. However, there are inevitable mistakes you’ll want to avoid to ensure that no one in your new family is shut out of inheritance for any reason.
Here’s what you want to avoid to ensure that everyone is happy (or as comfortable as they can be) and taken care of:
Not Changing Your Beneficiaries
Every Huntsville attorney knows that the most common — and most significant — mistakes people make are never re-evaluating their estate plan and updating their beneficiaries upon remarrying.
Think of it this way: Do you really want your ex-spouse still named as the beneficiary of your 401(k)?
You want to ensure that your estate plan reflects your current situation and the people in your life. That means ensuring that you change your designated beneficiaries so they’ll inherit your money or assets directly and as intended. You’ll need to go through your financial accounts, life insurance policy, and more to ensure that the proper beneficiary is named for each payout.
You’ll also want to update any legal directives, such as your power of attorney (POAs), to reflect who you want to manage your affairs and medical decisions if you become mentally incapacitated.
Leaving Your Will Unchanged
Once you have all your primary and secondary beneficiaries squared away, you’ll need to make sure you update your will next.
Your will usually take care of any assets not specifically designated to a beneficiary in a trust or another account. For example, your will may currently state that you want your vacation home to be left to your spouse and immediate family — but which family is presently reflected in your will?
When most people remarry, they decide that their current surviving spouse should inherit all of their assets upon death. All remaining assets should be divided equally among all the children. But, of course, this is also assuming that everyone gets along and will continue to get along. Your current spouse won’t write a new will upon your death that could shut out your entire family.
Your best bet is to update your last will to reflect your current wishes, determining who should get which important assets outside of your legal directives.
Treating All Heirs as Equals
Many people are under the guise that if they don’t split up their assets equally among children, it means that they’re playing favorites. However, this isn’t true, especially when your new spouse moves into your home where your children grew up and still live. In this instance, you may want to leave your children in their childhood home and not your spouse.
Or, if you brought more assets and money into the marriage, you may want to leave more to your own heirs than your spouse’s heirs. What’s more is that some of your heirs may not be fiscally responsible, which means you may need to create a “spendthrift trust” and point an executor to manage their assets to ensure they last.
Regardless of your reasoning, no rule requires you to treat all heirs equally. While the primary goal may be to ensure that everyone is provided for after you’re gone, you still want to ensure that the right heirs are given what they’re genuinely entitled to.
Not Gifting Assets While You’re Still Alive
You don’t have to wait until your will goes into effect to give your children their money or assets. Give them some of their inheritance while you’re still alive, whether for a business venture, college, starting a family, or another investment.
The IRS allows individuals to give up to $15,000 per person (or $30,000 per couple) without paying federal gift taxes. This can make for an excellent wedding gift that goes to a down payment on a home or another functional investment — and no one has to alert the IRS!
Not Planning Your Estate with an Attorney
Estate planning in Huntsville, AL, is already a somewhat complicated process. Still, it becomes even more cumbersome when blended families are involved. Working with an attorney to plan your estate is the only way to guarantee the best possible outcomes — as in the assurance that everything is up-to-date and that all of your documents are officially filed.
Without an estate planning attorney, you risk making tons of mistakes and leaving out assets that your heirs may be depending on later. It also leaves your last will more vulnerable to being contested.
When you’re ready to make sure that your estate plan reflects your current blended family, call us to schedule a consultation with Sarah S. Shepard or another experienced Huntsville attorney.