Blended families face unique estate planning challenges, but with open communication and the right legal tools, families can avoid conflict and ensure all loved ones are protected.
A blended family is a celebration of hope. It’s also an opportunity for challenges.
If you are part of a blended family, you know that with more people comes the possibility of more love . . . and also more conflict. Blended families experience unique estate planning challenges that can cause misunderstandings, at best, or disinheritance, at worst.
Fortunately, there are specific steps you and your family can take to minimize the turmoil.
What’s a Blended Family?
When we use the words “blended family,” we mean a family that’s a bit more complicated than two married parents and their biological children. This can include:
- Spouses who have children from a previous relationship
- Spouses dealing with exes – issues like custody schedules, holiday plans, or children’s activities
- Half-siblings, who share one parent but not the other
- Grandparents, Aunts or Uncles raising grandkids, nieces or nephews, whether or not official adoption takes place
Your family may fit into one of these categories, or it may look completely different. Either way, more people means more love . . . and also more challenges.
6 Estate Planning Challenges for Blended Families
1. Unintentional Disinheritance
In Illinois, when a person dies without a Will, there are specific laws, known as intestacy laws, that determine who inherits their assets. These laws give preference to biological children and current spouses, effectively leaving out stepchildren, ex-spouses, or other loved ones who lack specific legal designations. Sometimes the legal rules lead to unintended outcomes.
2. Conflicting Interests
Sometimes, creating a blended family can create an “us vs. them” mentality, in which certain members see others as competition for finite resources like time, attention, and money. If it’s not discussed and defused, this attitude can wreak havoc on an estate plan, leading to arguments and legal challenges from one “side” against the other.
3. Outdated Documents
Estate planning documents like Wills and Trusts, along with things like life insurance policies, IRA accounts, and property titles, should be updated every time a family situation changes.
Of course, in a blended family, you may feel like the only constant in your situation is change. This can make it difficult to keep up with legal paperwork, and forgetting to update an important document can lead to confusion, at best, and disinheritance, at worst. (Hint: Our Dynasty membership program is a great idea for blended families who may need frequent updates to their estate plan.)
4. Ambiguity
Some assets—like houses, property, or bank accounts—have joint owners. This can make inheritance complicated, depending on which joint owner dies first.
For instance, a jointly owned house passes automatically to the surviving owner, regardless of what the Last Will & Testament says. Jointly held bank accounts are the same way – passing to the co-owner no matter what the Will says.
In a blended family, not understanding the details of joint ownership can lead to confusion or incorrect inheritance outcomes. If someone is the co-owner of property, it is difficult to impossible to show that anyone other than that joint owner should inherit it.
5. Lack of Communication
Unless you have the hard conversations, your loved ones will make assumptions about money and inheritance. This can cause tension during your life—and chaos after your death—with multiple family members fighting for what they each think should belong to them.
Many of these issues can be prevented with honest, open communication, but even the most prepared of us are bound to miss things in the process of creating a new family.
6. Long-Term Care Expenses
More parents (and stepparents) sometimes means more love, but it also means more aging, more medical issues, and more chances for someone to need long-term care. More children (and stepchildren) means more possible caregivers (or care finders), which means more chances to miscommunicate about who, exactly, should help care for a loved one. Whether someone can qualify for Medicaid or Veterans benefits to help with care will depend on the entire household’s assets, even in a blended family, and even if there is a prenuptial agreement.
6 Ways to Protect Your Blended Family
1. Revocable Living Trust
A Trust is a robust planning tool that provides asset management during your lifetime and directs how your estate should be managed and distributed after your death. It allows members of blended families to set up a system to care for their loved ones, no matter the legal status of their relationship.
As part of a Revocable Trust, you can set up trust rules to provide for your spouse after you’re gone while still making sure that your children get the assets after the spouse’s death. For instance, you could leave your house in trust for your spouse to live in, but when they are gone the house goes to your family.
2. Prenuptial Agreement and/or Togetherness Agreement
A traditional prenuptial agreement clarifies expectations about asset distribution in the event of divorce. It can also be used to outline inheritance expectations in the event of death, but there are other options out there, as well.
David Edwards, our founding attorney here at Edwards Group, literally wrote the book on a unique type of premarital agreement he calls a Togetherness Agreement, which is used to create documents like Wills and medical directives. He describes it this way:
“A Togetherness Agreement (TA) is a detailed financial vision of your life together. Essentially, it involves putting everything on the financial table — your assets, debts, dreams, and obligations — and deciding how you can meet your needs and facilitate the permanency of your marriage.”
Both of these tools can have a place in your estate plan, depending on your blended family’s unique situation and goals.
3. Beneficiary Designations
It is very important to make sure your beneficiary designations fit with your legal wishes. Without careful attention, your beneficiaries may be in conflict with your Will or Revocable Trust. Read our article, “A Bad Heir Day: When Beneficiary Designations Trump Your Will” to learn more about the importance of keeping beneficiary designations up to date.
4. Ownership Considerations
A new blended family should carefully consider how to handle asset ownership. As mentioned before, joint ownership can be a useful tool, but it has pros and cons that need to be addressed, depending on your family’s particular situation. Property, houses, and bank accounts all need to be reviewed regularly to make sure they match your family’s goals for the future.
5. Life Insurance
Life insurance can add a significant asset to your estate without requiring much labor or a ton of capital, so it can be useful to “balance” inheritances. Perhaps your biological children inherit the house, but your new spouse receives the life insurance benefits (or vice versa). Either way, judicious use of life insurance policies can help keep things “fair.”
6. Personal Property Memoranda (“Special Stuff List”)
Sometimes, the assets that cause the most conflict within a family are the sentimental things. Their monetary value may be negligible, but, if they bring back fond memories, then multiple children (and grandchildren, and stepchildren) may want them.
In this situation, we recommend that you create a “Special Stuff List,” detailing your wishes for certain items. We even offer a free worksheet to help you make one!
The Most Important Step: Communication
Ultimately, your estate plan is only as good as your communication, and this is especially important for blended families. It’s essential that you have open, honest conversations with your loved ones about everyone’s expectations and wishes, and that you document everything.
At Edwards Group, we always start by listening—to your needs, goals, and concerns. We strive to understand your unique family situation, and to help you craft a plan that works for you. Blended families present complex financial challenges, and having a knowledgeable, experienced, compassionate partner by your side can make all the difference.
Ready to Get Started?
Call Edwards Group today at 217-703-7604 to schedule an Initial Meeting, or visit our Workshop page for information about our free, educational workshops.