Blended families are the joining of a spouses who already have kids. This may be as a result of divorce or death, but it is the joining of two families into one. And, the new couple may add additional children as a new couple. This is actually a pretty common occurrence in the U.S. since nearly half of all marriages end in divorce. Though, since there are children from different marriages, estate planning can become a bit of a challenge.
Updating the estate plan
The first step is updated the estate plan. This means taking out the former spouse and putting in the new spouse. This is most important with life insurance and joint accounts because the surviving spouse may not have any right or title in those accounts or insurance payouts, regardless of what a will states. For example, if a life insurance policy is in the name of a former spouse, and it is not updated. If the death does occur, the former spouse will be entitled to the life insurance payout, not the new spouse or their children, even if a will states that the life insurance payout should go to them.
Check the QTIP
Many wills, at least for those that are married, include a qualified terminable interest property (QTIP) trust. Essentially, a QTIP trust take all of the income from the assets of the deceased spouse and distributes it to the surviving spouse, then the underlying assets are passed onto the children. There are probably two QTIPs, unless a new estate plan has been done. And, now that there are two sets of kids, possibly three, if the new marriage produces children, a unitrust status should be used. This will allow for percentages for the joint QTIP to be distributed as the couple sees fit.
Life insurance trusts
Another option that should be considered is an irrevocable life insurance trust, which would be created for the children. These types of trust can be useful because they can shelter premium payments from gift taxes. At death, the proceeds of the life insurance are paid to the children. This can avoid some tension between current and former spouses as the interest is solely with the children.
Who to trust to be a trustee?
For Terrell, Texas, blended families, especially those where there were two (or more) divorces, pay special attention to whom is named as the trustee for these trusts. Current or former spouses may be tempted to push for more value going to their side of the family. Children may push for more value going to their blood relatives. This is why most estate planning attorneys recommend an independent trustee, like an accountant, attorney or bank.