The Blended Family and Issues with Finances and Estate Planning

Blended families present unique issues in finances and estate planning, but an open conversation about money, your goals and your estate plan can help.

The blended family is a family dynamic that is increasingly common, which can make addressing financial issues much more of a challenge. In a blended family, one or both spouses have at least one child from a previous marriage or relationship, and together they create what’s known as a new combined family.

CNBC’s recent article, “4 ways to help blended families navigate finances,” reports that a staggering 63% of women who remarry come into blended families, with 50% of those involving stepchildren who live with the new couple, according to the National Center for Family & Marriage Research.

The issues in a blended family can be demanding, so couples often delay having the “money talk.” This is an important piece of the family financial puzzle. We’ll look at some of the ways you can work on that puzzle, and see our website for more https://galligan-law.com/estate-planning-life-stages/estate-planning-for-blended-families/:

  1. Get expert advice from your Estate Planning Attorney. Talk to an estate planning attorney about the specifics of your blended family situation.  It is important that both spouses discuss how their separate and joint money will be used, both while they are alive and after they pass away.  This includes whether the spouses want to leave their assets for the children from their prior relationships.  It is also important to discuss the role the children will have in your estate plans so that you can avoid disputes between them.
  2. Create a plan for merging relationship and money. Understanding the role money plays in combining two families is critical to the success of a healthy blended household. A basic step may be to draft a detailed plan of how the couple is going to care for one another in their marriage and in their family, in addition to how they will care for one another’s children. Try to determine the ways in which money plays a role in coming together. The more you can communicate and the more that you can exhibit a united front, even from a financial perspective, the stronger a couple will be.  This may include considering either a prenuptial or postnuptial agreement detailing how your assets will come together in the combined family.
  3. Collect documentation and monitor your money. It’s good to understand the work involved with the preparation and paperwork after divorce and remarriage. You’ll have a divorce decree or a domestic partner agreement, as well as instructions on child support and alimony. You also need to keep track of all the different financial accounts.
  4. Discuss your financial issues regularly. Ask about the financial obligations to the ex-spouses. Make sure both spouses understand if there’s child support and/or alimony, as well as responsibility for paying for housing or their utility bills.

Although these issues may be demanding, they can be successfully navigated with frank, open discussion and the advice of trusted advisers.  If you are in a blended family, please contact our office for a consultation on how these issues may be addressed in your estate plan.

Reference: CNBC (November 23, 2019) “4 ways to help blended families navigate finances”

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The Biggest Estate Planning Mistakes to Avoid

Some of the biggest estate planning mistakes are easy to avoid, including having an up-to-date will, checking beneficiary designations and planning younger.

Nobody likes to plan for events like aging, incapacity, or death. However, failing to do so can cause families burdens and grief, thousands of dollars and hundreds of hours.

Fox Business’ recent article, “Here are the top estate planning mistakes to avoid,” says that planning for life’s unexpected events is critical. However, it can often be a hard process to navigate. Let’s look at the top estate planning mistakes to avoid, according to industry experts:

  1. Failing to sign a will (or one that can be located). The biggest mistake is simply not having a will. I’ve written on this often (see here for example https://galligan-law.com/everyone-needs-an-estate-plan/), but unfortunately clients consistently say they didn’t think they needed a will. Estate planning is critically important to protect you, your family and your hard-earned assets—during your lifetime, in the event of your incapacity, and upon your death.  In addition to having a will, it needs to be findable. The Wall Street Journal says that the biggest estate planning error is simply losing a will. Make sure your family has access to your estate planning documents.
  2. Failing to name and update beneficiaries. An asset with a beneficiary designation supersedes any terms in a will. Review your 401(k), IRA, life insurance, and any other accounts with beneficiaries after any significant life event. If you don’t have the proper beneficiary designations, income tax on retirement accounts may have to be paid sooner. This may lead to increased income tax liability, and the designation of a beneficiary on a life insurance policy can affect whether the proceeds are subject to creditors’ claims.  In many cases where clients tried to avoid probate, one broken beneficiary designation becomes the sole reason to probate the will.

There’s another mistake that impacts people with minor children, which is naming a guardian for minor children and then naming that person as beneficiary of their life insurance, instead of leaving it to a trust for the child. A minor child can’t receive that money. It also exposes the money to the beneficiary’s creditors and spouse.

  1. Failing to consider powers of attorney for adult children. When your children reach age 18, they’re adults in the eyes of the law. If something unfortunate happens to them, you may be left without any say in their treatment. In the event that an 18-year-old becomes ill or has an accident, a hospital won’t consult with their parents if a power of attorney for health care isn’t in place. Unless a power of attorney for property is signed, a parent may not be able to take care of bills, make investment decisions and pay taxes without the child’s signature. This could create an issue when your child is in college—especially if he or she is attending school abroad. It is very important that when your child turns 18 that you have powers of attorney put into place.

If you have any of these estate planning mistakes in your plan, please contact us for a consultation to fix these mistakes for you and your family.

Reference: Fox Business (October 15, 2019) “Here are the top estate planning mistakes to avoid”

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A Will is the Way to Have Your Wishes Followed

Individuals often do not make or appropriately update wills because they wrongly believe they aren’t necessary, but the will is the place for your wishes.

A will, also known as a last will and testament, is one of three documents that make up the foundation of an estate plan, according to The News Enterprises’ article “To ensure your wishes are followed, prepare a will.”  Two other very important documents are the Power of Attorney and a Health Care Power of Attorney. These three documents all serve different purposes, and work together to protect an individual and their family.  Today I’ll focus on the will and its important for conveying your wishes for your assets.

In our practice, we often encounter situations where a person passes away either without a will or without updating their existing will, both of which can lead to tragic results.  Assets will often go to unintended beneficiaries with far greater cost, difficulty and time.

There are a few situations where people may think they don’t need a will, but not having a will or updating it properly can create complications for the survivors.  Here are a few instances where people mistakenly believe they do not need a will.

First, when spouses with jointly owned property don’t have a will, it is because they believe that when the first spouse dies, the surviving spouse will continue to own the property. However, with no will, the spouse might not be the first person to receive any property that is jointly held, and it is especially true that the spouse may not be the first person to receive individually jointly owned property, like a car.  Even when all property is jointly owned—that means the title or deed to all and any property is in both person’s names –upon the death of the second spouse, an intestate (meaning no will) proceeding may have to be brought to court through probate to transfer property to heirs.

We frequently encounter situations where an executor will say that the decedent told them what they want, and that it does not match the will.  Or even worse, a decedent will have an old will that no longer reflects their wishes, such as not updating a will after getting married. In these situations, the will controls the property, even though the wishes are now wrong. It is critical to update your will with changes to make sure that the will conveys your estate to the beneficiaries you want.

Secondly, any individuals with beneficiary designations on accounts transfer those accounts to the beneficiaries on the owner’s death, with no court involvement. The same may apply for POD, or payable on death accounts.  In Texas you can even go so far as to name a beneficiary specifically on your deed or car title.  If the beneficiary named on any accounts has passed, however, their share will go into your estate, forcing distribution through probate.  Beneficiary designations also don’t adequately plan for successors, incapacity of beneficiaries and sometimes don’t allow many beneficiaries.   Clients often try to avoid probate on their own by the use of beneficiary designations, but we often have to open estate administrations where they are incomplete or ineffective for the above reasons.

Third, people who do not have a large amount of assets often believe they don’t need to have a will because there isn’t much to transfer. Here’s a problem: with no will, nothing can be transferred without court involvement. Let’s say your estate brings a wrongful death lawsuit and wins several hundred thousand dollars in a settlement. The settlement goes to your estate, which now has to go through probate.

Fourth, there is a belief that having a power of attorney means that they can continue to pay the expenses of property and distribute property after the grantor dies. This is not so. A power of attorney expires on the death of the grantor. An agent under a power of attorney has no power, after the person dies.

Fifth, if a trust is created to transfer ownership of property outside of the estate, a will is necessary to funnel unfunded property into the trust upon the death of the grantor. Trusts are created individually for any number of purposes. They don’t all hold the same type of assets. Property that is never properly retitled, for instance, is not in the trust. This is a common error in estate planning. A will provides a way for property to get into the trust, upon the death of the grantor.  This is called a pour over will.  See here for more details.  https://galligan-law.com/i-have-a-trust-so-why-do-i-need-a-pour-over-will/

With no will and no estate plan, property may pass unintentionally to someone you never intended to give your life’s work to. Or, having an out of date will that doesn’t reflect your wishes may direct property to someone you no longer wanted to benefit.  Having an up to date will lets the Executor know who should receive your property. The laws of your state will be used to determine who gets what in the absence of a will, and most are based on the laws of heirship. Speak with an estate planning attorney to create a will that reflects your wishes, and don’t wait to do so. Leaving yourself and your loved ones unprotected by an up to date will, is not a welcome legacy for anyone.

Reference: The News Enterprise (September 22, 2019) “To ensure your wishes are followed, prepare a will.”

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