Until not so long ago the definition of a family was two married parents and their offspring, all living under the same roof fulltime. Today, however, the term “family” covers all sorts of arrangements, including blended families from people forming new unions after previous marriages. These second marriages often include children from one or both spouses. While these “new” families often benefit all involved, they can pose problems when it comes to estate planning.
Consider the statistics: Roughly 17% of people remarry after a divorce or death of their first spouse, according to the Census Bureau. While the rate of remarriage has dropped over time for most age groups, it’s ballooned among the 55-and-older group – up to 57% in 2013 as compared to 42% in 1960. Adults who remarry later in life are more likely to bring significant assets to the new union, in the form of retirement savings, brokerage accounts, life insurance policies, and real estate.
So, it’s safe to say that many adults with children will confront the question of how they want to divide their assets between their current spouse, their children, and their step-children. It’s a question that’s best answered with proper planning.
A will is the backbone of every estate plan. Other documents that may be included in the plan are trusts, financial powers of attorney, and advance directives for health care. A solid financial plan suggests that you should have a will (no matter your age), especially if you have kids.
If you fail to prepare a will during your lifetime, your assets get distributed under the laws of your home state, leaving your wishes (and sometimes your children) by the wayside. This situation can result in prolonged litigation, family infighting and the resulting financial and emotional drain on all parties involved.
A well-crafted estate plan makes your wishes clear. If you don’t already have a plan in place, I highly recommend working with a professional to create one.
Here are some important points to consider when taking steps to ensure your beneficiaries get the assets you want them to have.
The House(s) – Typically, one of the most valuable assets in an estate is the real property. Remarriage often involves a jointly owned home or homes. You need to check the deed to see how the house is titled. In some cases, even if you have left your interest in the home to your children in a will, it won’t have any effect unless you have changed the nature of the title of the home.
In many states, real property is deeded as “joint tenancy with right of survivorship” or “tenancy by the entirety.” These legal terms mean that, if you pass away, the property automatically belongs to your surviving spouse, no matter what your will says. This is often the default way that real property is deeded, so you have to check to see what your situation is. If you want your spouse to keep the home upon your passing, then this is a moot point.
But, if you want to leave your share to someone else, consult with an attorney to determine if it makes sense to change the ownership designation to “tenancy in common.” This type of home ownership means you can leave your share to someone other than your spouse if you so choose in your will.
And, to make things even trickier, there are tax implications to consider. I highly recommend talking with a professional if you own a home in a second marriage with children. You want to make an educated decision about this valuable asset and your estate.
Account Beneficiaries – This is an often-overlooked piece of estate planning. As with the title to your home, beneficiary designations supersede instructions in your will. So, if your ex-spouse is listed as the beneficiary on your life insurance policy but your will says that your new spouse should take the proceeds, guess who wins? Your ex, that’s who.
Another account to look at is your 401(k) plan. The rules for these plans dictate that your current spouse must be the beneficiary unless he or she legally agrees not to be. So, if you want your children to receive a share of your 401(k) account, make sure that you have the beneficiary designation in place to reflect your wishes. If you don’t and you die before your new spouse, they will take the entirety of the fund, leaving it up to them whether to share with your children.
Consider a Trust – Trusts are powerful vehicles to hold assets and to direct how these assets may be used. Say you have young adult children and don’t want them to receive a lump sum of money when you pass away. You can have their inheritance put in trust to be managed by a trustee, so they won’t be tempted (or have the ability) to squander the money.
Your Heirlooms and Valuables – Here’s where the will is a rock-solid guide to who gets what. If you want a particular child to get a piece of family history, say so in your will. Be specific, so there won’t be any uncertainty or sibling rivalry.
Communication is Key – No matter what your wishes, be sure to talk to your spouse and your children about what you want. You don’t have to go into nitty-gritty dollar amounts, but you should set expectations. It may seem like an uncomfortable dialogue – because it is. Still, a conversation like this can help eliminate any future discord between your partner and your children.
While you’re at it, use the talk as an opportunity to discuss your values and hopes for how your children will use the assets. Although not part of the estate plan, per se, this type of “family conversation” is valuable for all parties involved.
Planning for your passing is not pleasant – no one likes to think about leaving this earth for what’s next. It is, however, vital for you and your loved ones. In fact, a solid estate plan is a gift to those you cherish most.