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Financial Planning for Blended Families
by Russell Lowry (Write for us!)
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On The Brady Bunch television series, the fictional Brady family exuded
the very essence of familial closeness, blending their smiling broods into a single blended family. But we never got to take a peek at patriarch Mike Brady’s finances or his estate plan (if he had one). The truth is, the complex financial implications of a blended family are rarely as sanguine as things were on the Brady set.
Going through a divorce or losing a spouse through death are among life’s most stressful events. The process can be especially difficult when children are involved. Even when divorced or widowed mothers and fathers remarry, the difficult times don’t end, as more emotional and financial issues need to be sorted out with the newly merged family. Although settling complicated issues such as inheritance and property division can be unpleasant, it’s usually better to deal with these thorny issues sooner rather than later.
Prenups Make Sense
When individuals come into a marriage with children and assets of their own, decisions regarding inheritance and other financial matters assume a new level of complexity. Parents will generally want to make sure their wealth will benefit their own biological children. If your new spouse also has children - especially teenagers or adults -typically there may not be a strong urge to have those stepchildren share equally (if at all) in your estate. Frequently, there may be some concern about leaving an estate outright to a surviving spouse.
"These issues really come into focus when there is a large age spread between the husband, the wife and the kids," says Jim Schaffer Jr., an advisor with Lincoln Financial Advisors in Solon, Ohio.
While prenuptial agreements may not sound terribly romantic, using one to clearly delineate who has what going into a marriage is often one of the most effective tools remarried individuals can use to head off trouble. "Particularly for someone coming into a marriage with significant wealth, these agreements can help prevent the agony and expense of disputes down the road," says Schaffer.
Family Harmony: A Matter of Trust(s)
Beyond the use of prenups to keep assets separate, a well-crafted estate plan will ensure that your assets go where you want them to. These plans involve the use of wills, trusts and, sometimes, life insurance.
"Typically what you’ll see is an older husband with children of his own who marries a substantially younger woman, and the concern tends to be how his estate plan can ensure that both the spouse and the kids receive benefits after he dies," says Schaffer. He notes that a frequent fear is that the surviving spouse will have very little desire - and often no legal obligation to ensure that his or her stepchildren will receive the inheritance the deceased had intended to leave them.
A commonly employed solution is for the father (or mother, if she has the greater share of assets) to split their estate in two. One portion is used to fund a qualified terminal interest property (QTIP) trust to provide lifetime income - and principal for health, education and maintenance - for the surviving spouse, which passes to the children after the spouse’s death. The other portion of the estate could be gifted outright or in trust to the intended beneficiaries - usually the biological children.
Another alternative involves the creation of an irrevocable life insurance trust (ILIT) which is funded with the assets of the "moneyed spouse." The trustee is directed to purchase a life insurance policy on the life of the creator, with the death benefit going to the trust. The trustee can then distribute the proceeds according to the creator’s wishes - perhaps apportioning the payout among children and the surviving spouse.
Confronting Reality
Aside from the strategies for dealing with the financial implications of blended families, discussing the issue itself can be difficult. Family meetings in which you clearly state your wishes are a good way to begin.
"People have to know that when you’re talking about how you want to leave your money, fair does not mean equal," says Schaffer. "Discussing your intentions with your spouse and with your children (if they’re old enough) is best for everybody. You don’t want people to linger under mistaken assumptions."
Speak with your financial planner about issues you may be facing in your blended family and strategies for creating workable solutions.
Talk to Your Financial Planner About:
CRN200609-2000630
Going through a divorce or losing a spouse through death are among life’s most stressful events. The process can be especially difficult when children are involved. Even when divorced or widowed mothers and fathers remarry, the difficult times don’t end, as more emotional and financial issues need to be sorted out with the newly merged family. Although settling complicated issues such as inheritance and property division can be unpleasant, it’s usually better to deal with these thorny issues sooner rather than later.
Prenups Make Sense
When individuals come into a marriage with children and assets of their own, decisions regarding inheritance and other financial matters assume a new level of complexity. Parents will generally want to make sure their wealth will benefit their own biological children. If your new spouse also has children - especially teenagers or adults -typically there may not be a strong urge to have those stepchildren share equally (if at all) in your estate. Frequently, there may be some concern about leaving an estate outright to a surviving spouse.
"These issues really come into focus when there is a large age spread between the husband, the wife and the kids," says Jim Schaffer Jr., an advisor with Lincoln Financial Advisors in Solon, Ohio.
While prenuptial agreements may not sound terribly romantic, using one to clearly delineate who has what going into a marriage is often one of the most effective tools remarried individuals can use to head off trouble. "Particularly for someone coming into a marriage with significant wealth, these agreements can help prevent the agony and expense of disputes down the road," says Schaffer.
Family Harmony: A Matter of Trust(s)
Beyond the use of prenups to keep assets separate, a well-crafted estate plan will ensure that your assets go where you want them to. These plans involve the use of wills, trusts and, sometimes, life insurance.
"Typically what you’ll see is an older husband with children of his own who marries a substantially younger woman, and the concern tends to be how his estate plan can ensure that both the spouse and the kids receive benefits after he dies," says Schaffer. He notes that a frequent fear is that the surviving spouse will have very little desire - and often no legal obligation to ensure that his or her stepchildren will receive the inheritance the deceased had intended to leave them.
A commonly employed solution is for the father (or mother, if she has the greater share of assets) to split their estate in two. One portion is used to fund a qualified terminal interest property (QTIP) trust to provide lifetime income - and principal for health, education and maintenance - for the surviving spouse, which passes to the children after the spouse’s death. The other portion of the estate could be gifted outright or in trust to the intended beneficiaries - usually the biological children.
Another alternative involves the creation of an irrevocable life insurance trust (ILIT) which is funded with the assets of the "moneyed spouse." The trustee is directed to purchase a life insurance policy on the life of the creator, with the death benefit going to the trust. The trustee can then distribute the proceeds according to the creator’s wishes - perhaps apportioning the payout among children and the surviving spouse.
Confronting Reality
Aside from the strategies for dealing with the financial implications of blended families, discussing the issue itself can be difficult. Family meetings in which you clearly state your wishes are a good way to begin.
"People have to know that when you’re talking about how you want to leave your money, fair does not mean equal," says Schaffer. "Discussing your intentions with your spouse and with your children (if they’re old enough) is best for everybody. You don’t want people to linger under mistaken assumptions."
Speak with your financial planner about issues you may be facing in your blended family and strategies for creating workable solutions.
Talk to Your Financial Planner About:
- How to apportion your assets for a blended family.
- What trusts can help achieve your objectives.
- How to discuss asset division with your family in a productive manner.
CRN200609-2000630
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