04 Nov Estate Planning for Blended Families: A Detailed Guide
It’s always a wise call to update your estate plan after you get married (or remarried) and whenever you welcome new children into your family. If yours is a blended family, you’re not alone! About 1 in 6 American kids lives in a blended family. But if you want to leave an inheritance for your stepchildren, you’ll need to take some legal “steps” as well. However, estate planning for blended families can get a little complicated. According to Arizona’s laws of succession, your assets will automatically pass to your biological children, leaving your stepchildren out completely. But don’t worry—we’re here to help you figure out a plan that includes everyone.
Our example scenario below explains three of the most important steps you’ll need to take.
Estate Planning for Blended Families with Children: An Example Scenario
When Sarah and Tom got married, they both had children from previous marriages. Over the years, they had three more children together. This brought the number of children in their blended family up to seven.
One evening, while sorting through some paperwork, they stumbled upon Tom’s will, in which he left everything to his children. However, since the state of Arizona does not include stepchildren in this definition, Sarah’s kids from her previous marriage would not be eligible beneficiaries.
They realized that without clear communication, misinterpreted intentions could lead to resentment and confusion. So, they scheduled a meeting with an estate planning lawyer.
The first thing Sarah and Tom did was write new wills. They detailed their beneficiaries by name to make sure everyone was included. Then, they set up a living trust that would distribute an inheritance to all seven of the children in their blended family. They also named legal guardians for their children and set up a power of attorney, just in case anything happens to them while their kids are still young.
Three Important Estate Planning Steps for Blended Families
Step One: Write a Will That Names Your Stepchildren
After remarrying you’ll need to update your will. If you don’t have one, then it’s time to write one. Don’t put this off! Each spouse needs to have their own will. You need to cover things like who will care for minor children if you pass away and how they should be financially supported. For example, if Sarah dies and her children are underage, Tom won’t necessarily become their legal guardian or have any legal rights to care for the children unless he’s named as a guardian.
Naming a guardian for your children in your will ensures that someone you trust—like your spouse—will take care of them. It’s important to clearly state your choice in the will to avoid any potential disputes or confusion. Make sure this decision is discussed with all relevant parties so everyone is on the same page.
Step Two: Create a Trust
It’s not enough just to have a will—especially not when you have a blended family. A living trust can be particularly beneficial for blended families in several ways:
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- Assets held in a living trust can bypass the probate process. This allows for a quicker and more private distribution to beneficiaries. It will minimize conflict and save time and money.
- A trust allows you to specify exactly how your assets will be divided between your beneficiaries. It gives you the control you need to prevent ambiguity and ensure that your wishes are honored.
- If you pass away before your spouse, a trust can be structured to provide for them during the rest of their lifetime. It can also specify how the remaining assets will be distributed among your children and stepchildren after your spouse passes.
- It is more difficult to contest a trust than a will. A trust provides an added layer of security against potential disputes among your heirs.
- If you become incapacitated, a living trust ensures that your assets will be managed by a designated trustee. Your financial affairs will be carried out according to your wishes, providing peace of mind for both you and your spouse.
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Keep in mind that both spouses can have separate trusts. This will depend on family dynamics, how each spouse accumulated their wealth, and the needs of their surviving spouse and children.
Step Three: Durable Power of Attorney & Advance Directives
Occasionally one spouse will have these documents drawn up and in their estate plan while their recently-married partner does not. Both of you should have a durable power of attorney and an advance directive. Keep them updated when necessary, and file them with your estate plan.
An advance directive ensures that your medical preferences are respected and followed if you’re unable to communicate them yourself, while a durable power of attorney allows someone you trust to make financial and legal decisions on your behalf in case of incapacity.
A Power of Attorney (POA) for your underage children allows you to designate someone to make decisions on their behalf in case both you and your spouse pass away. This can include healthcare decisions, educational choices, and financial matters. It’s important to clearly outline the scope of the POA and communicate your wishes with the designated person to ensure they understand their responsibilities.
How to Divide an Estate When You Have Stepchildren
Splitting assets in a blended family can be particularly complex. It’s important to have open and clear discussions with your spouse about your goals and wishes for each of your children. Here are some key topics to cover:
1. Beneficiary Designations
Whose name is on which account? Review and update the beneficiary designations on your life insurance policies, retirement accounts, and other financial assets.
2. Guardianship
If your children are still minors, decide who you want to appoint as guardians in the event of the death of one or both parents. Make sure to consider how these choices align with the best interests of all children involved.
3. Asset Distribution
Talk about how you want to split your assets among your biological children and stepchildren. Will your assets be divided evenly between each of them? Why or why not? Be clear about your intentions to prevent misunderstandings or disputes later on.
4. Family Business Considerations
If you own a business, discuss how it will be managed or passed on. If you had your biological children included, will your step-children now be part of it?
5. Financial Obligations
Address any financial responsibilities you have towards your children from previous marriages, such as child support or educational expenses.
6. Debts and Liabilities
Your estate is responsible for settling any outstanding debts. This may reduce the amount of the inheritance available to your children.
7. Trusts and Inheritance
If you have a trust, use it to outline how your assets should be distributed among your children and stepchildren. You can designate specific assets or amounts for each of them.
8. Guardian Expenses
If you appoint a guardian for your minor children, you may want to provide for the guardian’s expenses.
9. Life Insurance
If you have life insurance, the payout can help cover living expenses or future costs for your children. You can name your trust as beneficiary of your life insurance policy instead of naming your spouse or one of your children.
10. Education
If you have specific wishes regarding your children’s education, consider documenting them in your estate plan.
11. Communication with Children
Plan how you will communicate these estate planning decisions to the rest of your family. Explaining your wishes will ensure transparency, and if your children are old enough, it’s best to do this during your lifetime. After you pass, it will be up to your spouse or the executor of your estate to communicate your wishes.
Estate Planning Guidance for Arizona Families
With a firm plan in place, everyone will feel included, valued, and cared for. At Phelps LaClair, we understand how complicated estate planning for blended families can be. For legal advice, please schedule a consultation, so we can answer all your questions.
Estate planning isn’t only about who inherits your assets, it’s also about establishing a lasting legacy for the people you love. With over forty years of experience writing custom estate plans, we know how to help you protect your family’s future. We offer a free, first time consultation with no obligation, so give us a call today.
Image by Alisa Dyson from Pixabay on 10.2.2024. Used under the creative commons license.