Blended families that consist of a couple and children from current and previous relationships are becoming increasingly common. The U.S. Census Bureau reports about 15% of children live in blended families and the American Psychological Association reports that about 50% of all first marriages end in divorce. Blended families often face complex financial challenges which may include managing financial assets from previous relationships, providing financial support to children from those relationships, ensuring that financial documentation has been updated, and facilitating open communication among family members.
If you’re part of a blended family, here are five simple tips to help ensure you’re all on the same page when it comes to finances.
Tip #1: Review beneficiary designations
Among the most common mistakes that individuals in blended families make is the failure to change their wills or their beneficiary designations after remarriage or a new relationship.
Naming beneficiaries ensures financial assets are passed on to the people or organizations of your choosing. After a new relationship or marriage begins, review and update the beneficiaries on your will, financial accounts, and any trusts you have established. Failure to do so could, for example, result in an ex-husband or ex-wife inheriting your IRA or 401(k) assets. Changing beneficiary designations means that financial assets will pass directly to the intended person without probate, which is the legal process of settling an estate.
Tip #2: Update your estate plan
While updating beneficiary designation forms may seem easy, understanding the full impact of your designations and how they fit into your overall estate plan can be more complicated. That’s why it’s essential for spouses in a blended family to review their estate plans, revise them as necessary and work with professionals to clearly define how assets will ultimately be distributed. This is especially true if you have factors to consider like whether it makes sense to name minor or special needs children as beneficiaries.
In many jurisdictions, a spouse may have rights to a portion of the assets accumulated during marriage, unless a prenuptial agreement or a waiver is in place. If you wish to leave assets to children from previous marriages, specific types of trusts can be created. These can allow you to control the distribution of assets, ensuring that children are supported according to your intentions without unintentionally dispossessing your current spouse. For example, a well-structured trust can offer a solution for providing for your current spouse during their lifetime while ensuring that the remainder passes to your children from a previous marriage upon the death of the surviving spouse. This can prevent potential conflicts and ensure that assets are protected and distributed according to your specific wishes.
For more of our estate planning insights, see our Insights blog, Estate Planning Tips for Remarriage or Blended Families.
Tip #3: Review healthcare directives and insurance policies
In addition to the financial accounts discussed in Tip #1, healthcare and insurance documentation also needs to be reviewed and potentially updated.
Durable powers of attorney and health care directives need to reflect your current family situation. These legal documents ensure that someone you trust can make financial and medical decisions on your behalf if you become incapacitated. For blended families, choosing the right person(s) for these roles can affect how your assets are managed.
Life insurance can provide immediate financial support to surviving blended family members, settle debts, and ensure that long-term financial goals, such as education or retirement, are not compromised by premature death. After remarriage, review who you have designated as beneficiaries on insurance policies to avoid conflicts and ensure that proceeds are distributed as intended.
Establishing a trust as a beneficiary for life insurance proceeds can provide you with control over how and when the funds are distributed. This is particularly useful for ensuring your children from previous relationships are cared for without granting them unrestricted access to a large sum of money at a young age.
For more insights about when to review your insurance policy, read our blog, Four Top Reasons Why You Should Review Your Life Insurance Policy.
Tip #4: Keep open lines of communications
Perhaps one of the most important aspects of financial planning for blended families is open communication. Avoiding potential disputes and confusion may require you to speak openly with your spouse and adult children. This can be a great opportunity to explain your decisions, listen to concerns, and adjust your plans if necessary to reflect your family's needs and wishes.
Open lines of communication among all key members of your blended family will increase the likelihood that your wishes are carried out. It's easier for disagreements to arise when there is confusion and uncertainty. Family meetings can help avoid potential conflicts among your spouse, your children and stepchildren. Family meetings also give you an opportunity to clearly express your desires regarding your estate plan.
For more insights on how to keep open lines of dialogue regarding financial issues, read our recent blog, When, Why and How Should You Have a Financial Discussion?.
Tip #5: Get advice you can trust
Blended families may require expertise that goes beyond standard investment advisory, legal and tax services. Guidance from trusted advisors will help you develop a clear understanding of your family's specific financial goals and challenges. This might include estate planning to ensure assets are distributed according to your wishes, or assistance with setting up college savings accounts for children from different relationships. Additionally, blended families often face unique tax implications, from filing status to claiming dependents and understanding the tax impacts of alimony and child support.
All of these issues make it crucial for you to work closely with professionals like financial advisors, attorneys and accountants who understand blended family dynamics.
Let us help with your wealth planning needs
The tips above can help you avoid mistakes and help lead to a greater likelihood of achieving your financial goals for your family and ensuring a solid foundation for future generations.
Your Hancock Whitney Wealth Management team has deep experience working with the complex planning needs of blended families and is here to answer questions, provide insights and guide you on the path to financial freedom.
The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
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