In this day and age, blended families are becoming just as much–if not more–normal than traditional ones. Unfortunately, things can get much more financially complicated in such situations. Whether you’ve had multiple marriages, are in a common-law relationship and/or have children from previous and current relationships, the following is some basic financial advice you should consider:
1. Make sure your property is protected
When you own property jointly with a significant other, in most cases the title passes automatically to the survivor and avoids probate fees when the other co-owner dies.
Problems can arise, however, if you have children or other dependents from a previous relationship and wish for them to share in the value of your property. If this sounds like your situation, I wouldn’t recommend holding title to the property jointly with the right of survivorship. Instead, meet with a financial and/or legal expert that can recommend ways to hold title to your property in a way that benefits your children while also fulfilling your wishes.
2. Don’t automatically follow the rules of a standard will
If children are involved, think twice before designating your partner as the direct beneficiary of all your assets.
For traditional families, it’s common for spouses to designate each other as direct beneficiaries of all assets in a standard will. But for blended families, this move can be a major disadvantage to the children involved. In the latter situation, when one partner dies, everything is passed to the survivor, possibly disinheriting the children of the deceased partner.
If the surviving partner remarries, then the new partner would like become entitled to the estate (or a large potion of it), potentially cutting the children of both the deceased partner and the survivor out of the financial equation.
Alternative strategies to a standard will could include splitting up the estate at the time of death of the first parent, or using a spousal trust to protect the assets for both families. Talk with a financial and/or legal professional about what specific terms of your will would be appropriate for both families.
3. Develop a plan with your partner that meets both of your wishes and goals.
It’s important to be on the same page with your partner when developing an estate plan for your blended family. Sit down together with a financial professional to determine how you’ll treat all your children equally in the long term, as well as how you’ll handle your kids’ current money situation. One thing to consider is setting up educational savings plans for each child that can be accessed when needed with little to no tax penalties.
The bottom line: While blending families together can be a huge blessing, it can also make things complicated from a financial standpoint. That’s why it’s important to make decisions regarding your estate plan sooner rather than later to ensure your loved ones are protected.