Investor Education | Estate‐planning moves for blended families

It is now common for one or both spouses to have children and grandchildren from previous marriages, which creates a “blended family.” But these additions to the clan can complicate estate planning. Keeping that in mind, the following techniques may be beneficial for blended families.

~Will: Your will is the center piece of your estate plan and should be coordinated with other devices such as trusts. It can be amended through a codicil for minor changes or be completely rewritten to reflect major changes. For example, you might rework a will to include your spouse and your children from a second marriage or even your spouse’s children from a prior marriage.

~Living trust: Often viewed as a supplement to a will, a living trust enables you to maintain control over disposition of assets. Typically, the trust is revocable, so you still have the ability to change the beneficiaries and allocations, or otherwise amend it during your lifetime. Because assets contained in a living trust avoid probate, this can be valuable to someone who wants to avoid public scrutiny.

~Prenuptial agreement: This is no longer the exclusive domain of the rich and famous. A prenuptial agreement is often designed to protect assets before entering a second marriage and preserve wealth for the children of your first marriage. It may also be coordinated with other rights and responsibilities (e.g., conditions for a second spouse to act as executor of your estate).

~Power of attorney: A power of attorney is a legal document authorizing the attorney-in-fact to act on your behalf. With a durable power of attorney, the power continues if you become incapacitated. The decision as to whom you designate as the attorney-in-fact can be a critical one for blended families.

~Retirement plans and IRAs: It is likely that much of your wealth is socked away in qualified retirement plans, such as a 401 (k) and traditional and Roth IRAs. Prior beneficiary designations should be updated due to certain life events such as a divorce, marriage or remarriage, or birth of a child. These plans and IRA designations supersede any declarations in your will or other documents.

~Life insurance: As with retirement plans and IRAs, you may be inclined to amend your beneficiary designations. Alternatively, you might revise the percentages of proceeds going to the respective parties. Once again, these beneficiary choices supersede other designations.

~QTIP trust: A Qualified Terminable Interest Proper ty (QTIP) trust is comparable to a regular marital trust. However, if the surviving spouse is entitled to a portion of your assets upon your death, he or she receives regular income payments, but not any principal. When the surviving spouse dies, the remainder passes to the designated beneficiaries, potentially providing estate-tax benefits.

These are just several techniques that are often utilized in planning for a blended family. Other options may be available for your situation. With assistance from your estate-planning advisers, create an overall plan that m ets your objectives and will hopefully provide family harmony.

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