- June 4, 2019
- Posted by: Ethica Private Wealth
- Category: Blog
Everyone wants to think about all of the positives when they get married. Often the planning of finances comes after marriage for many people when they get settled. Around half of all Australians die without a Will.1
While it is confronting to think about what happens when we get to the “until death do us part” section of the vows, planning for what happens after you’re gone is essential for the emotional and financial well being of your family.
Estate planning can be daunting for individuals and couples in their first marriage. Estate planning for blended families and people in their second marriage is even more complicated and comes with a new set of challenges. There are multiple people, perspectives and opinions to consider when making decisions.
Risks of not estate planning for blended families
In most cases, the couple wants to provide a benefit to each other, then for their children once both have died. While it may sound straightforward, there are risks involved in planning an estate for blended families in this way. The primary risks for estate planning when you have a blended family include:
- The Will of the surviving party made during the relationship that is later revoked through one of the following:
- A subsequent marriage
- The surviving party making a new Will which benefits their own children and excludes the stepchildren
- Failure to understand that certain assets fall outside the parameters of their Will and must be dealt with in other ways.
There are a variety of strategies available to provide the best chance that the estate planner’s wishes will be met.
Individual Property Trusts
If one person brings a sizable amount of assets into the marriage, it may be useful to set up a Property Trust. This will ensure that assets within the trust will ultimately end up with your appointed beneficiary. There are several options you could explore including:
- By making your spouse the beneficiary of the property trust until their death, then passed on to your children.
- Having your separate property distributed directly to your children.
Regardless of if you have property trusts individually, you and your spouse should set up a joint trust with protection for your children. One option could be that upon the death of your spouse, half of your joint assets are moved into an irrevocable trust for the surviving spouse to live off. The remaining half is then preserved for the children of the deceased spouse. Although this can be expensive to set up, the extra costs are well worth the peace of mind.
Power of Attorney
An airtight Power of Attorney gives you the ability to name a person that you trust to manage your financial affairs and legal decisions if you are not able to while you are still alive. When doing this, you must also ensure that all existing powers of attorney are revoked. Establish a new power of attorney naming your elected trusted individual.
Advance Health Care Directive
Much like a Power of Attorney, an Advance Health Care Directive allows you to name a person that you trust to manage decisions about your health care when you are incapacitated. A current health care directive also helps medical professionals in emergencies to quickly make decisions for you. It may also create an opportunity to talk with your spouse about your end-of-life care and burial arrangements.
Life Insurance and Retirement Account Beneficiaries
You and your spouse probably have a significant amount of wealth in your life insurance policies and retirement accounts. Your Will or Trust will not control who those assets are distributed to as they have separate beneficiary designations. People often forget to update beneficiaries on those assets from previous marriages.
You should think of your accounts and policies with your estate plan as a whole. There are some things to consider when naming a beneficiary. You may want your Estate to be passed to your children after providing a benefit to your spouse through a life insurance plan. It is important to remember that minors are not legally able to control assets and their guardian may manage the asset until they turn 18. Speak to an Estate Planner about strategies to allow your children to benefit from life insurance and retirement account benefits.
Share Personal Information and Contacts
It takes years to get to know someone properly. You may still be learning about your spouse well into your marriage. Someone getting married a second time or later in life often has a whole lifetime of financial decisions and assets behind them. Get to know about your spouse’s assets and consolidate your seldom-used accounts so your spouse won’t have to play detective after you’re gone.
Your new spouse may not know about your old friends and distant relatives. Giving them names and contact information will allow them to notify important people if something happens to you.
Bringing together two families brings legal and personal challenges but a trusted wealth management professional can guide you through the process and achieve your financial goals.