“It doesn’t matter where you start, it matters where you finish.” Gary Vaynerchuk may not have been speaking of blended families when saying these words, but for a lot of blended families, these words speak volumes. The blended family, think The Brady Bunch, has a lot to consider in terms of Estate Planning. This article is dedicated to blended families, although some of the advice will apply to traditional families as well. Here are five estate planning tips for my blended family friends out there.
You May Want to Ditch Basic Planning
Some estates are simple estates and can get by with minimal legal work. I call these the minimalist plans. They work great for elderly clients with minimal assets and young adults with no children or major assets. Blended families have a lot to be thankful for, but easy estate planning is not one of them.
With blended families, a simple Will just won’t cut it for most families. The reason is that it provides no protection for your children, unless you make an immediate gift to them at your death. When you leave everything to your surviving spouse, they have complete control over their inherited assets. In other words, they could cut out your children and leave everything to his own. Or, perhaps a new spouse.
Consider Separate Trusts, or an AB Trust
If you are in a blended family, consider using separate trusts or an AB Trust as a way to provide for your surviving spouse during life, but to ensure the remaining assets pass to your child(ten). Trusts are often the “go-to” estate planning tool for many attorneys. And, for good reason. Trusts provide a ton of benefits during life and offer great flexibility for controlling assets from the grave.
Using separate trusts may empower you to accomplish two objectives. First, to provide for one another in death. Second, to ensure you maximize your chances of preserving a gift for your children. The AB Trust is a type of joint trust that splits after the first spouse passes away, accomplishing a similar set of objectives. There are good reasons for the use of either, and your advisor will be better able to explain the pros and cons of each plan to ensure you make a good choice.
Choose the Right Trustee
If you go the separate or AB trust route, make sure you find an experienced and unbiased Trustee. This is the person who will make financial and investment decisions for your trust after you are gone. This person will be pitted between taking care of your spouse and preserving wealth for your children. This can be a very difficult position, since two competing interests are at play. As such, you should consider an experienced trustee and perhaps a corporate trustee.
If Your Children are Adults, You Might Gift to Them Now
Depending on your financial, family, and other considerations, you may want to make gifts directly to your adult children at your passing. Many factors go into this decision, but some common ones we see are: age and financial maturity of children, total assets and whether there is enough to care for the surviving spouse, and the goals of our clients. Sometimes, we may recommend a second insurance policy to accomplish this goal.
Pick Your Health Care Proxy
Who is going to make major medical decisions if you are no longer able to do so? Is it your new(er) spouse, adult child(ten), a sibling, or a friend? Your spouse may seem like the logical decision and it is quite common. However, in blended families, it may be that one of your adult children would be a better option. Obviously, there can exist some major opportunities for fights when family members are split over health care decisions. In blended families, these fights can create very difficult situations.
I have blended families all around me and I’m very grateful for them. Regardless of how they started, they chose to finish with a larger family and more love. While I wouldn’t trade my blended family for anything, I know that it does come with some challenges. These five estate planning tips for blended families is just a start to the conversation and you owe it to yourself and your loved ones to make sure you finish the conversation with your trusted advisors.