5 Things You Need to Know about Estate Planning If You Are Part of a Blended Family
Having a comprehensive estate plan in place is essential for all adults. This is true regardless of the value of your estate or your age. If you have an estate plan in place you are ahead of the majority of Americans; however, you shouldn’t stop there.
Facts and Figures about Divorce and Remarriage in the U.S.The divorce rate has hovered around 50 percent in the U.S for some time now. Consequently, blended families that result from second (or subsequent) marriages have all but become the norm in the U.S. While estate planning is important for anyone with a family, it takes on a heightened importance if you are part of a blended family.
Estate Planning While Married -- Reciprocal WillsTraditional estate planning typically meant that married spouses create reciprocal estate plans that included terms which left their entire estate to the surviving spouse. That way, if one spouse passed away, the entire estate was left to the other spouse and upon his/her death, the estate assets were distributed among the children. When a blended family is involved, however, reciprocal Wills can be problematic.
What to Do After a DivorceEstate planning for a blended family begins when you get divorced by updating your current estate plan. For example, you may need to:
• Change the Executor of your Will and the Trustee of a trust.
• Update the terms of your Will to reflect the fact that you are no longer married.
• Change beneficiary designations on life insurance policies, retirement accounts, financial accounts, and any other assets that include beneficiaries.
• Update advance directives and powers of attorney by appointing a new Agent.
The Impact of Remarriage on Your Estate PlanRemarriage should lead to changes in your estate plan. One common concern people have when they remarry is how to provide for a new spouse while still protecting assets meant for children from a previous marriage.
How Can a Qualified Terminable Interest Property Trust (QTIP) Help?A QTIP trust operates in basically the same way as any other trust with some special terms designed to provide for your spouse while protecting your children’s inheritance. You will need to appoint a Trustee to oversee the administration of the trust and to manage the trust assets. Assets transferred into the QTIP trust are not actually gifted to your current spouse when you die. Instead, your spouse receives income from the trust assets but cannot withdraw the principal from the trust nor can he or she decide on the ultimate disposition of the trust assets. In the case of real property, your surviving spouse may also receive a “life estate” in the property, meaning that he or she may remain in the home until death, but will never own the property outright. When your surviving spouse dies all assets held in the trust are then transferred to the intended QTIP trust beneficiaries, typically your children from a previous marriage.