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Wealth Planning

Planning finances for a blended family

Planning finances for a blended family

The term “blended family” can have different meanings for different people. It can sometimes feel overwhelming to figure out a plan that will work for a new spouse and children along with family members from a previous marriage. However, planning can go a long way. The following considerations can help you get organized.

Sign a pre-nuptial or post-nuptial agreement early

Communication is crucial in any marriage, so start early. Discuss your financial goals and how you think about your assets, then put those objectives into a written agreement. This can help reduce conflict and misunderstandings later. You and your spouse should have independent counsel for any pre- or post-nuptial agreements.

Ensure estate planning documents meet objectives

Create or update your estate plan. Otherwise, your assets may be distributed according to default state laws, which may be contrary to your objectives. This is especially true in the context of a blended family. For instance, if you do not have a will or trust indicating otherwise, state laws generally give a portion of your assets to your spouse and the balance to your children when they reach the age of majority—but not to step-children unless you’ve legally adopted them.

Check the way your assets are titled

The way you title your assets can often upend even the most carefully drafted will or trust. For instance, property held with your spouse as joint tenants with rights of survivorship passes automatically to your spouse upon your death and not according to the plan expressed in your will or trust. If you want to leave those assets to your children, you should retitle your assets into your individual name or into a tenants-in-common account with your spouse, and ensure your estate planning documents pass your portion of the property to your children.

Consider life insurance

If you are planning to leave a family business or other asset to older children from a first marriage, life insurance could be a helpful way to provide for your new spouse and younger children (or vice versa).

A new spouse or children add more complexity to your estate planning, but one simple question can help you approach your plans: Do you want your children from a previous marriage to wait until their step-parent passes away to receive certain assets, such as life insurance money? From an emotional perspective, providing this liquidity to your children could help to relieve some conflict that may build up as a result of having to wait for their inheritance until their step-parent’s death. This is especially important if your new spouse is significantly younger than you.

Life insurance can also be a way to provide for younger children from a second or subsequent marriage while also transferring wealth to older children from an earlier marriage. Especially if your younger children have yet to attend college or graduate school, or are not yet out of the house, insurance can be an easy and efficient way to provide liquidity to pay the expenses you paid for your older children and would have paid for your younger children.

Review designated beneficiary forms on accounts

Review and update your beneficiary designations for your IRAs, 401(k)s, existing life insurance policies, and other accounts where there is a direct beneficiary named, such as “Transfer on Death” or “Payable on Death” accounts. These forms are often overlooked and some people accidentally leave ex-spouses as the beneficiary. Other times, your child may be named as a beneficiary when that may not reflect your current intent.

Update your health care and power of attorney documents

Review and update your health care and any special or durable power of attorney documents to reflect who you want to be your agent and power-holder. You may still have a former spouse named in those documents. Alternatively, you may have named your children prior to your re- marriage. You will need to update these documents if the current documents are not in line with your current wishes. Often in the context of a blended family, individuals have a “committee” of agents that could be composed of your new spouse and children. Note that many states prefer, and some require, that only one person at a time may act as a health care agent.

Introduce trusted advisors to your new spouse/adult children

You and your new spouse may have separate advisors for tax, legal and investment matters. Consider introducing each other to your respective advisors so that each of you is familiar with the individuals and institutions that may be able to assist in the future when needed. Adult children should also be brought into the conversation and introduced to your advisors.

Family meetings can be a helpful way for you to determine where potential conflicts among your spouse, children and step-children may exist. Family meetings are also a forum for you to express your desires regarding your estate plan. Hearing your goals in your own voice may help alleviate future misunderstandings about your wishes among your family members.

Dynamics, estate size and circumstances are unique to each family. It is essential that you consult with your attorney to determine which planning options are best for you. Proactive planning and discussions during your lifetime can be very beneficial for your blended family.

Please contact your J.P. Morgan representative to discuss these and other considerations as your family composition and goals evolve.






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