Blending two families is a tricky act, especially when you consider all the emotional aspects as well as physical aspects (where everyone will live). And if you add the finances to this duo, you can end up with a pretty complicated trifecta of challenges. One of the biggest challenges of blended families is estate planning, since it can create mistrust among family members if you don’t handle it properly.
Financial advisers recommend you get into advanced wealth planning with clear goals if you want everything to go smoothly. Here are some tips for estate planning to retain family wellbeing and happiness.
Settle on names
Start your estate planning with a list of names you want to include in your documents. This list should include people who are to serve as agents during your incapacity or death and people who you are to receive your assets and possessions after your death.
Update your documentation
When it comes to inheritance, the name means everything. No matter what is written in your will, if you IRA account contains a name, they get the account, period. So, updating your documentation is very important since you want it to reflect your new family status. Consider changing the beneficiary on your RRSPs, insurance and workplace pension. Not updating these is one of the biggest mistakes you can make after you enter a new relationship.
Creating a simple will is not enough
If you just have a simple will, this creates an opportunity that your biological children get left out of your spouse’s estate plan in the future. Creating a so-called “I love you“ will and leaving everything to your spouse is risky. What if they decide to cut out your kids and leave everything to their kids or grandkids? They don’t have any obligation towards your children.
Consider creating a trust
One of the best ways to protect your assets is to create a trust. Since married people often leave everything to each other, if you pass away first, everything you own goes to your spouse. The issue with this is that your new partner might decide not to leave anything to your kids (like stated above). It’s best for remarried couples to use trust structures to distribute assets. For instance, you can consult with you’re your local wills and estate lawyers and ask them to help you set up a trust. They can advise you on the right path, but many professionals often recommend naming yourself as the trustee during your lifetime. Once you pass, your spouse receives income from the assets and the capital goes to the children after the spouse’s passing.
Decide who will make healthcare decisions
You always need to have a discussion about incapacitation and who would be in charge of your affairs when you become incapacitated. Most states allow you to name only one person to make healthcare decisions for you, so who will it be? This question can cause a lot of conflicts, so you might want to create a living will or healthcare directive (consult with your estate planning lawyer).
Consider life insurance
Life insurance is a great and simple way to ensure that your current partner will get your home and other assets while making sure all your kids receive something after your death. When it comes to life insurance, you can name your kids as beneficiaries which allows them to receive money right after you die (this process is more complicated if kids are minors, so consult with professionals). Other assets can be left to the spouse without the need of a trust because you will take care of the kids separately.
What if you don’t do any of this?
If you decide not to make any estate plans, your money, assets and properties will be divided according to your will and according to your state’s laws of intestacy. This means you don’t have any say over how your property is handled and who gets what. It also makes it more likely that your stepchildren won’t get anything no matter how important they were in your life.
If you live in a real-life “Modern Family”, then you have to consider creating a good estate plan for blended families which will provide everyone in your life that you love with something upon your passing. With minimal conflict and stress, you will get to live your life in peace knowing everything is handled.