Planning Issues for Blended Families

If you're in a second marriage, you and your spouse may both have children from previous relationships. You don't necessarily have the same level of income or savings. You also come to the marriage with different life insurance policies and retirement plans. It isn't going to be easy to create a long-term estate plan, but it is possible if you and your spouse are honest and flexible.

First, decide if you want to combine your assets once you are married. Maybe one spouse is giving up a house to move in with the other partner — should the proceeds of the sale go to paying down the remaining mortgage? You also need to consider the debt each person is bringing into the relationship, such as mortgages, student loans and car loans. If one partner is deeply in debt, you may decide to keep your finances separate.

Next, you need to consider how you will distribute your assets when you die. This is a complicated discussion. Both partners will need to balance the needs of their new spouse with those of any children from their previous marriages. One popular option is to create a trust for your children, which may make them beneficiaries of life insurance policies or give them permanent income from interest-generating assets, depending on the type of trust. Be sure to include family heirlooms or mementos you want to keep in your family in the trust assets. Discuss your decisions with all involved parties to prevent problems in the future.

Update your will and create such estate planning documents as a durable power of attorney and a health care proxy. Consider a prenuptial agreement if you have significant assets. By consulting an elder law or estate planning attorney, you can decide if a trust is necessary to protect your children's interests.

Many Items to Check
Think about whether you want to change beneficiaries on your life insurance policy, annuity or retirement plan. Reread the divorce decree from your first marriage carefully while doing this. It may contain provisions that affect future decisions. If you can't change beneficiaries, you may want to buy additional life insurance or retirement plans that include your new spouse.

Be open and honest with your new spouse and your family members about your wishes. The problems created by second marriages shouldn't be taken lightly. Talk to your new spouse, who may also want to make sure that his or her adult children receive assets. You may want to leave some assets to the surviving spouse and some to the children in separate trusts.

If either spouse ever needs a nursing home, the other will be responsible for the costs. Realize that you cannot escape personal financial responsibility for long-term care of your spouse.
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All these issues are complex. The interests of your own children may collide with those of stepchildren and a new spouse. But open discussions about guardianship, long-term goals, finances and contractual obligations will help minimize conflicts and stress. Don't let any family members get shut out of an inheritance. Work together, and with qualified legal and financial professionals, to create a plan everyone can accept.