As of 2024, the United States has a crude divorce rate of 2.4 per 1,000 marriages, which is substantially above the global rate of 1.6 per 1,000. In other words – divorce is surprisingly common in the U.S., with the issue having an impact on your estate planning.
Those issues become more complex if you later choose to remarry.
Remarriage can bring with it a “blended family,” in which one or both partners in the new marriage bring children from past marriages or relationships into the current one. This blending of families can create challenges from an estate planning perspective as you try to find the right plan to ensure that everybody is taken care of appropriately after you die.
That is where this article can help. We are going to share some of the key tips for estate planning for blended families, starting with a tip that many overlook.
Tip No. 1 - Always Choose a Trust Ahead of a Will
Many will instantly jump to wills for blended families when trying to sort out the complicated web that becomes their estate planning once they have remarried and have stepchildren. However, there is a problem with wills – they are little more than instructions you provide to a probate judge on how you would like things to happen. Any lack of clarity – or forgotten item – leads to confusion, which raises the possibility that your will may be challenged after you have passed. Challenges are not too common, with roughly 3% of wills in the U.S. being challenged, but the possibility that your will could lead to strife for your blended family makes this vehicle a poor choice when you are estate planning with stepchildren involved.
Blended family trusts are the far superior option.
Not only are trusts legal structures that protect the assets you place into them – along with the instructions you create for the distribution of those assets – but they typically avoid probate. So, your beneficiaries will receive precisely what you want them to receive and will not have to wait for the completion of a lengthy probate process that can take six months or more to clear.
As for the best trust for blended families, you have several choices, with family and marital trusts being among the most common.
A family trust can take several forms, though almost all result in your assets being passed on to the named beneficiaries in the trust. For instance, a living trust can take effect both after or during your lifetime, with you having full control over the distribution of assets – ideal for outlining who should receive what in a blended family situation. Revocable trusts serve a similar purpose, with the caveat that you can revoke assets and even the instructions given to the trustee at any point. If you still wish to create a will, you can also create a testamentary trust – a type of trust created through your will that enables you to protect assets from creditors upon your death.
You also have the option of setting up a marital trust. In this legal construct, you pass assets to your surviving spouse while leaving some aside – residual assets – that will pass to your children following your spouse’s death. A marital trust safeguards both your spouse and children following your death.
As to which of these blended family trusts is the best option for your situation, the answer usually comes with the help of an estate planning lawyer. Consultations and cooperation with all family members are key here – the more work you put into creating the trust, the less chance there is for confusion after you pass.
Tip No. 2 – Consider the Needs of the Surviving Spouse
Regardless of the assets you wish to leave to your children, you must always consider the needs of your surviving spouse when estate planning for blended families. Will that spouse have to deal with creditors chasing your unpaid debts? Might they remarry, or have to contend with an illness without your support once you have passed? These are the types of questions to ask when setting up whichever blended family trusts seem right to you.
The tip here is simple – consider the future of your family when estate planning.
Your spouse may outlive you by several years, with your estate planning ideally being designed to ensure they can continue to take care of your family – and themselves – after you pass. So, do not make the mistake of leaving everything you own to your children or a small subsection of potential beneficiaries. Think about the people who will provide care to those children when you are gone.
Tip No. 3 – Consider a Prenuptial Agreement
Ideally, estate planning for blended families should start before the family becomes officially blended. That is where prenuptial agreements – also known as “antenuptial agreements” in Ohio – can help. With this agreement, you and your new partner can outline both your expectations of one another and, in the estate planning realm, how you wish to handle the assets you each individually own.
For instance, if you wholly own a property that you wish to leave to your children from a past marriage alone, you can specify this desire in a prenuptial agreement. Should you later divorce your new partner, that asset will then be protected from claims from your former spouse and your stepchildren.
What if you have already remarried without a prenuptial agreement?
You still have options. Ohio Senate Bill 210 became law on March 23, 2023, with the law enabling married couples to create postnuptial agreements. Those who already have prenuptial agreements can also use this law to make alterations, which is ideal if the blended family’s asset situation changes over time.
Tip No. 4 – Check and Recheck Beneficiary Designations
A common error, both in estate planning for blended families and estate planning in general, comes from people failing to keep their beneficiary designations updated across the board. For instance, you may have insurance policies or retirement accounts created long before you entered your second marriage that still names your ex-spouse as the beneficiary. Overlooking these accounts and policies creates confusion when you pass, with the named beneficiary rightly being able to claim and properly contest their ownership of any assets for which they are named.
Why does that happen?
The named beneficiary on such an account trumps everything else you may set up. So, you may specify that you want the proceeds from a life insurance policy to pass on to your new spouse in a will or trust, for instance, but that will not matter if the intended recipient is not the named beneficiary on the policy.
The tip here is simple – check and recheck your beneficiary designations on all accounts and policies regularly. A good practice is to confirm everything is as you wish it to be once per year.
Tip No. 5 – Be Careful with Contingent Beneficiaries
A contingent beneficiary is somebody you name as a beneficiary on a policy or account who will receive the benefits of that policy or account in the event that the primary beneficiary passes away, becomes ineligible, or is somehow no longer able to receive the benefit. Think of them as your backup beneficiaries – they receive whatever the asset may be if the main beneficiary cannot.
What does this have to do with estate planning for blended families?
Some people name their current spouse as the primary beneficiary on a policy or account while naming their children and stepchildren as contingent beneficiaries. Doing this is fine as long as you intend for the full asset to go to your spouse upon your passing. The mistake comes in with the assumption that a contingent beneficiary will still receive something if the primary beneficiary can claim the asset.
That is not the case – the primary beneficiary receives everything even with contingent beneficiaries in place. So, there is no guarantee that your contingent beneficiaries – i.e., your children in this example – will receive anything from the account or policy.
None of this is to say that you should not name contingent beneficiaries because not having them means the asset passes into your estate and will be distributed accordingly. Simply do not rely on a contingent beneficiary structure to ensure your children receive what you wish them to receive – the primary beneficiary always takes precedence as long as they are living.
Get Help When Estate Planning with Stepchildren
Remarrying is a joyful experience, especially as it brings with it the prospect of creating a larger blended family. However, that blending also creates challenges – the distribution of your assets after your death can become confusing if you do not have the correct legal structures in place to ensure everything is done according to your wishes.
The tips shared here help in that regard – with the creation of trusts being the primary course of action to take – but you may need help to plan your estate properly. That is where Chris Diedling Law can help – contact us today and we can set you on the right path to choosing the best trust for blended families and much more.