You probably know that 45-50% of first marriages end in divorce! But the news gets worse, 60 – 67% of second marriages and 70-73% of third marriages also end in divorce. What those statistics mean is that there are an awful lot of blended families out there. Blended families make estate planning a bit more challenging.
There are all sorts of questions to consider:
• Will all children be treated equally whether they are his or hers, from a previous or current marriage?
• Are there children with special needs that may require more assistance than the other kids?
• Are all your children able to responsibly manage their finances? If not, how can you protect them?
• If your previous divorce was amicable, do you want your former spouse to receive any of your assets?
• Do you want to leave some of your assets to other family members, organizations or charitable groups?
• Do you and your spouse want to leave a legacy that benefits all the children and protect that legacy from creditors and predators?
One of the main mistakes couples in blended families make is to designate each other as the primary beneficiary of all assets. Upon death, the estate goes to the spouse, potentially disinheriting the previous branch of the family, especially if there are no fond feelings between the past and present family. There is also a problem if the other spouse dies first and there is not contingent beneficiary named.
A blended family situation is an ideal time to make use of trusts and subtrusts to make sure that your legacy is treated the way you intended. Doing this the right way can avoid unintended beneficiaries and avoid acrimony in a couples' heirs.
A trust is a written agreement designating a trustee who will be responsible for managing your assets. With a trust in place, when you die, your assets are transferred directly to your heirs without the lengthy probate process. You can have multiple trusts and sub-trusts in place to divide your assets among former and current family members.
Trusts can help to minimize taxes, avoid probate, control the ways assets are used after your death, and to make it easier to handle your heirs to handle your financial affairs should you become incapacitated.
There are many different types of trusts, the most common being revocable and irrevocable trusts. A revocable trust can be changed at any times, whereas an irrevocable trust can't be modified except under very special circumstances.
A subtrust divides a trust into several parts and helps preserve assets for specific beneficiaries, like children from past and present marriages.
Because estate planning can be tricky with blended families, an attorney with years of experience in estate and legacy creation is essential to your planning. A good attorney can offer unique ideas you might not have thought of as well as plenty of assistance with the paperwork and legal documents necessary to setting up a trust(s), sub trusts or any other aspect of protecting and dividing your assets once you are gone.