Inheritance Strategies for Blended Families

Blended families, or families in which one or both parents have children from a previous relationship, are more common in today’s world than in the past. Not surprisingly, the combination of conflicting emotions and competing interests between members of these stepfamilies is the primary source of inheritance feuds.

The first step to creating an estate plan for the future includes open, honest communication with your children and spouse to determine what they can expect from you financially. In addition, there are a number of effective strategies that should also be considered to help ease familial tension.

Inheritance Strategies blended families

Prenuptial or Postnuptial Agreement

In terms of communication, it’s important for an engaged or married couple to discuss what financial support they can expect from each other, especially when children from previous marriages and relationships are in the picture. This goal can be achieved through prenuptial (before marriage) or postnuptial (after marriage) agreements. These contracts provide a detailed outline of the rights and responsibilities held by each party during their marriage and in the event of divorce, specifying items such as payment of expenses or living arrangements. Although these agreements are not always enforceable, they are typically recognized nationwide and can be used to alleviate marital disputes down the road.1

Beneficiary Designations

At the minimum, beneficiary designations on assets, such as retirement accounts, life insurance policies and annuities, should be updated in the event of divorce and remarriage. This means that those assets will go directly to the listed beneficiaries. The biggest value of these direct transfers is that they bypass probate, which is the legal process of distributing property in an estate. Therefore, the assets are not subject to the terms of the deceased person’s will and are not included in his or her estate.

In this situation, the last thing most people would want is to unknowingly have their former spouse listed as the beneficiary of their assets. Conducting a review and adjustment of your beneficiaries after experiencing a life-changing event will ensure that those assets go to the intended heirs.

Revocable Living Trust

A revocable living trust is another vehicle that can help direct who receives your assets. It enables a successor trustee to carry out your wishes in the event of your death or incapacity. If you’re part of a blended family, a revocable trust can be particularly beneficial, because you can make changes to them while you are still alive. Although assets in a revocable trust will be considered part of your estate when you die and are therefore subject to estate taxes, they are not subject to probate and are not a matter of public record.

Will

Like revocable trusts, wills are valuable tools that should be in place if you are part of a stepfamily. Wills are essential, because they specify how your wealth should be distributed after your death. They can also be amended at any time during your life. Added advantages of drafting a will are that it can allow you to name a trusted, third-party executor to make fiduciary decisions in your beneficiary’s best interest and name a guardian for any minor children.

The techniques discussed above are just a few of the most common ways to resolve inheritance issues for blended families. More advanced strategies may include utilizing Qualified Terminable Interest Property (QTIP) Trusts or Irrevocable Life Insurance Trusts (ILITs). Keep in mind that estate planning is a complex area that brings significant legal and tax implications. It’s important to consult an estate planning attorney or tax professional to help you coordinate the process.

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Kimberly Nguyen Velasco
Kimberly Nguyen Velasco

CFP® | Associate Advisor

Kimberly Nguyen Velasco, CFP®, is an Associate Advisor with Wipfli Hewins Investment Advisors in Rockford, IL. Kimberly primarily focuses on personal financial planning for millennials and retirement planning for small business owners.

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Inheritance Strategies for Blended Families

time to read: 2 min