Blended families face special estate planning complications

This article was first published on bankrate.com by author, Jay McDonald.

“I once had to tell a family member on his death bed that because of the way he arranged his assets, the farm that had been in his family for a couple generations is headed to his wife and her family,” he says.

To prevent the situation that Krull encountered takes meticulous financial planning. The goal is to nurture your new blended family now and ensure they are taken care of after you’re gone.

According to Krull, an effective financial plan for a blended family should:
1. Disinherit your ex-spouse
2. Protect your own children
3. Provide for your new spouse, and
4. Minimize estate taxes

Disinherit your ex-spouse? Yes. Not only is this a little-known step, it is vitally important to avoid the kinds of legal shocks that continue to fuel TV soap operas.

Simply put, unless you actively remove an ex-spouse as the named beneficiary or joint owner with right of survivorship, he or she could legally inherit your house, your Employee Retirement Income Security Act (ERISA) retirement plan, your life insurance payout, even your bank account balances. This could occur even if you specified otherwise in your will and even if the laws of your state automatically extinguish the ex-spouse’s interest in the assets of your estate. How can this be?

“All of those things trump a will. They are non-probate transfers,” Krull explains. “The only transfers that a will covers are those that go through probate. Joint ownership with right of survivorship, pay-on-death, transfer-on-death and beneficiary designations all trump probate.”

What’s more, unless you take the proper legal steps, your former wife or husband would likely be named by a probate court to manage the inheritance you leave your children. If one of your children should predecease him or her, your ex-spouse, and not siblings, would inherit that share of your estate as next-of-kin.

“You have to change all your beneficiaries,” says Williams. “I’ve seen clients who have been married two or three years and they still have their parents as their beneficiaries. And that includes life insurance, IRAs and retirement plans.”

Protecting your children and providing for your spouse might seem simple, but in blended families, few things ever are. If you leave everything to your spouse with instructions to provide for your children, you run the risk of disinheriting your own kids because your spouse’s estate could fall to his or her offspring, not yours.

Then there’s the havoc that can result in May-December romances where the children are as old, or older than, their stepmother. Your children may not live to receive the inheritance you intended, or your spouse may simply choose to leave it all to her children or to her new spouse.

Fortunately, financial planners have a ready set of legal tools to make sure you don’t accidentally disinherit your own children. Here’s what they are and how they can work together:

Long-Term Discretionary Trust (LTD trust)
This trust administers your children’s inheritance through a trustee appointed by you. Should a child predecease your ex-spouse, their inheritance would go to their children (your grandchildren) or your surviving children, not your ex. LTD trusts also can protect your children’s inheritance from divorce, bankruptcies, lawsuits and irresponsible spending.

Qualified Terminable Interest Property Trust (QTIP trust)
A QTIP trust provides income and even principle to your new spouse for life, after which the trust assets often pass to an LTD trust for your own children. Protects your new spouse while providing for your children.

Life insurance
A policy on your life will provide a known amount to your beneficiaries upon your death. The payouts also can be used to fuel a QTIP trust to benefit your spouse and children or an LTD trust to protect your children. QTIPs are particularly useful to “cash out” children who are of similar age to a younger surviving spouse.

Second-to-die insurance
For May-December couples who have young children, the attractive payout of a second-to-die policy can enable them to amass a financial war chest for their heirs. The policy may be owned by an Irrevocable Life Insurance Trust (ILIT trust) to minimize taxes.

Premarital agreement
By clearly listing those assets you intend to keep separate after marriage, you may have greater control over them after you’re gone, at least in states that recognize prenups.

A typical blended family financial plan might include a prenup which stakes your legal claim to your individual assets, a life insurance policy which provides a known amount of money to each beneficiary, and a QTIP trust to provide a lifetime income stream for your spouse and then funds an LTD trust for your children.

Krull says he also likes to include what he calls a “Rodney King clause,” as in “can’t we all just get along?” “That clause says that if anyone whines or complains about what my clients have set up, then they are presumed to have died before my client according to the trust instrument and are thereby legally disinherited by being declared dead.”

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Blended Family Financial Planning by Dr. Taffy Wagner

I’m in a Blended Family – Where Do I Start with Money?

Congratulations for getting married again. If you are in a blended family
and are shaking your head because you do not know where to start, I have
some answers for you. Let’s face it when you were not in a blended family,
managing money was not easy. Now you find that you have even more
questions because of the family dynamics that you are dealing with.

Recognize that you are not only dealing with your immediate household, but also another parent because there are children involved. What I am
proposing to you is for your immediate household and you take into account the variables that I could be missing. I don’t have to know all those variables; however, you should include them so you do not make any financial mistakes.

When entering into a blended family, I would recommend as the first step
if you have not done it already is to establish a financial foundation for
your household. Look at what did you do in your previous relationship,
what did you do when you were single. Also look at what your spouse did
prior to your marriage and now the two of you need to establish a
financial foundation for your household.

Meaning you need to sit down and share how you managed money. Who would be best at managing the money now? What are the different bills that need to be paid and when? What is the amount being paid for child support each month? It is my belief that if you are in a blended family, the
responsibility of caring for a child to include support has already been
discussed and both parties understand what is to happen.

I would also say if you brought additional bills to the relationship, the
two of you need to decide and prioritize how to handle this. You do not
want to leave anything out which would give you an opportunity to get your marriage started on a solid foundation. Do not walk in with rose colored glasses, but have your eyes wide open. When you said I do, that meant also to everything that comes along with the spouse.

Being in a blended family can be a beautiful thing. Take the time to
invest in your marriage and your family. Set an example for everyone
watching to see that it can work if you want it to.

If you have a specific question, do not hesitate to send me a question to
info@DebtAtTheAltar.com and let’s get it answered. If you do not want your name or question shared on the blog, let me know.

Dr. Taffy Wagner
Creator of Money Talk Before The Commitment Walk and The Debt Stops At The Altar
www.DebtAtTheAltar.com
303-576-0670

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Yours, Mine and Ours

Maintaining Your Blended Family Marriage

Did you know that the divorce rate among second marriages is higher than that among first marriages? One would assume that if a person has a second chance, he or she would be sure not to mess it up. However, there are some  second marriages that breakdown under financial strain; second marriages that are torn apart by children; and second marriages that never had a chance to begin with. Then, there are those that actually do survive and eventually thrive despite the chaotic world of the blended family.  These couples work through their communication issues in order to create a marriage that is more solid than their first.

In order for your second marriage to work I believe it’s essential to consider what went wrong in your first. Many times divorcees will get on their “high horse” by insisting that their marital problems were soley their ex’s fault. However, there is hardly a divorce where fault falls exclusively on one person. Because far more challenges will present themselves in your second marriage (children, unresolved feelings, bitter ex’s, etc.), it is necessary to examine your own mistakes in the past so that you are less likely to repeat them in the future.

Nurturing Your Second Marriage

It is so very important to nurture your second marriage!!! Often times remarried couples make themselves the LAST priority by putting the problems with their respective children, exes, finances…first. Remarried couples need to spend time nurturing and building their relationship together just as any “traditional” marriage, without children, would. Schedule date nights together, and take vacations without the children, sometimes. Take every moment that you can to remember and remind each other of why you fell in love in the first place. Remember, that when the children are grown and gone, and there are no more exes to fight with, you will be left with each other. You can not grow old with your children or problems with your former spouse. As such, you shouldn’t spend ALL of your time in these areas. Of course, you have to raise, love and nurture your children. And, you have to work on resolving your issues with your former spouse so that you can co-parent effectively. But, these areas can’t take priority over your marriage. Any good marriage needs to be nurtured and loved if it’s expected to survive. Besides, taking these actions will only benefit your children because you will be building a strong, stable, loving environment in the process.

My husband and I made the mistake of putting everything before our marriage, and honestly, it almost FAILED!! At several points in our relationship we were both ready to throw in the towel. The stress of both of our children not immediately adjusting (this is a unrealistic expectation that most remarried couples have) along with dealing with the exes, almost tore our marriage apart. All of our communication, and I mean literally ALL of it, centered around the kids, his ex or my ex. Naturally, it just wasn’t good for our relationship. We didn’t put as much effort or time into our relationship as we did those other things, and it showed. We realized this one day on a rare occasion when both of our children were gone. Not only did we not know what to do with ourselves, but we began talking about…problems with the children and/or the exes. It wasn’t until my husband said, “We spend way too much time talking about our problems, let’s talk about something else.” The only problem was that we literally did not know what else to talk about. At that point, we had our light bulb moment…ding, ding, ding…WE HAD BEEN SERIOUSLY NEGLECTING OUR MARRIAGE AND THAT’S WHY WE HAD BEEN HAVING SO MANY PROBLEMS, duh!! From then on, we decided to rediscover why we fell in the love in the first place. We scheduled date nights together, even if the kids were in the house. They were not allowed to bother us during our special time. We created a standing rule that we would only talk about our problems with the exes and children if absolutely necessary. We decided that WE are the king and queen of our household, and we would ALWAYS respect each other as such; even when it came to our respective exes. Once we set this foundation our communication issues were a lot smaller than they really were.

Finances

Second time newlyweds often bring their own financial resources and obligations into their second marriages; making finances a touchy subject in second marriages. Ideally, it is always best if the couple combines everything together instead of creating the definitive boundaries of yours, mine and ours. Once you do that, you begin to see everything as yours, mine and ours; your children vs. my children; your money vs. my money; I’ll pay for this for my children vs. you pay for this for your children, and we’ll pay for this for our children. As you can see, it becomes way too complicated. As such, it is always best if you view your newly made family as a whole instead of in parts. Having said that, when it comes to each child’s respective child support; that money should be earmarked for that child, alone. For example, we do not use M’s child support money on K. M’s child support money is for taking care of his needs. Just like M never uses K’s child support money. But, the money that my husband and I make is for taking care of everybody in our household. So, when we go on vacation I don’t only pay for my child and my husband only pays for his. It is the same when we go out to dinner or buy Christmas gifts, etc.

It is important to remember that whenever one marries or remarries he or she does so in entirety, not in parts. As such, whenever possible, the remarried couple should view themselves and their family as a single unit instead of divided. It should never be a yours, mine and ours…just ours; our marriage, our children, our money, our family.


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