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  • Writer's pictureCook Tillman

What Financial Planners Should Know About Estate Planning For Blended Families

Updated: Mar 25

Financial planners are uniquely responsible for understanding a family’s finances and relational dynamics. One of the foremost influences in a family’s estate plan is family structure, and blended families (second marriages, multiple sets of children) are far from a minority in the U.S. Over 29 million parents are parents to stepchildren, and there are approximately 2,100 new blended families in the U.S. every day. This shift means financial planners must become well-versed in navigating estate planning options that make sense for blended families. Here are some tips from Cook Tillman on how to do so. 


Financial Planning Challenges For Blended Families

While every family situation is different, here are some common challenges that financial planners may have to navigate when aiding a blended family with their estate plans.


  • Relational Friction: Too often, the intentions of the planning generation are unknown to family members among the inheriting generation, which can cause rifts when the intent for the estate is revealed after the first death of a parent. While discussions of inheritance can be difficult, advising clients to have these conversations early on can help prevent shock and disagreements in the future. 

  • Unintended Disinheritance: Unintended disinheritance may occur if the family has not established their will or trust with their particular family structure in mind. This is when the original parent may leave assets to their spouse, and upon the spouse’s death, the spouse's children receive the original parent’s children’s inheritance. Unintended disinheritance can be avoided through tools such as separate revocable trusts. 

  • Elective Share Claim: A spouse in a blended marriage may want to leave his or her share of assets exclusively to his or her children and not to the surviving spouse or such survivor’s children. Although the couple perhaps agreed to this arrangement during the predeceased spouse’s lifetime, the surviving spouse may choose (either unilaterally or in response to pressure from his or her children) to claim an elective share of the decedent’s estate.  Depending on the number of years the couple was married, the surviving spouse may claim 10%-40% of the assets passing under the decedent’s will. Proper planning can preclude the surviving spouse from claiming the elective share or at least reduce the incentive to do so.


Blended Family Financial Planning

Fortunately, financial planners can protect their client's vision for their estate and uphold the financial arrangements they made during their lifetime by applying forethought and having the right conversations. 


  • Trusts As Prenuptial Substitutes: A Tennessee Asset Protection Trust is a useful planning option if a client is getting married and wants to keep certain assets free from any marital claims but cannot get his or her fiancée to sign a prenuptial agreement. The client creates the trust and funds it before marriage, thereby ensuring the property remains “separate property.” To enjoy such protection, the client must cede control and dominion over trust assets to a third-party trustee, but he or she may still retain the power to (i) direct the investment of trust assets, (ii) receive all trust income, (iii) withdraw up to 5% of the trust principal annually, (iv) be reimbursed for trust income taxes paid by the client, and (v) remove and replace the Trustee. 

  • Separate Revocable Trusts: If a couple wants to maintain separate assets during marriage and wants to avoid probate, each spouse may form a separate revocable living trust for his or her own benefit, with him or her as trustee. Trust property held in a separate trust is less susceptible to accidental commingling and transmutation into marital property in the event of divorce. Importantly for estate planning purposes, each spouse may construct his or her preferred postmortem distribution structure under separate revocable trusts without coordinating as much with the other spouse. This will ensure that each set of children will independently inherit from their biological parents. Unlike wills, trusts do not go into public record, which can protect a beneficiary's privacy after the loss of a parent or spouse. 

  • Avoiding an Elective Share Claim: Using a life insurance policy is one of a handful of effective tools for avoiding an elective share claim. If an individual wishes for their estate to pass entirely to their children and not to their surviving spouse, the individual may hold a life insurance policy that pays a death benefit to his or her spouse in an amount equal to or greater than the surviving spouse’s elective share amount, thus reducing the value of the potential elective share claim and disincentivizing the surviving spouse from making that claim.


 

At Cook Tillman, we have seen how informed decision-making gives blended families clarity and peace of mind regarding their estate plans. We understand that navigating estate planning for blended families can sometimes be difficult, which is why we offer continuing education seminars to financial planners looking to make the right decisions on behalf of their clients. We encourage financial planners to sign up for our continuing education seminars for more details about estate planning for blended families. Contact us today at (615) 370-2444 or via our website.



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