Unique Issues of Blended Families
The definition of a blended family has come to mean “a family group that comprises two adults, married or unmarried, of the same or different gender, one of both of whom has children from a prior relationship, and possibility having children from the current union of adults.”
This definition includes the common “yours, mine and ours” phenomena, but doesn’t include a family headed by a single adult with children from multiple relationships.
Multi-tiered blended families — those with a wide range of ages among adults or children — present special challenges. These families have unique financial, tax, and estate planning needs.
Traditional family estate financial and tax planning techniques — the classic A/B trust with lifetime income to the surviving spouse, corpus to children at the death of the surviving spouse — are insufficient for blended families with the resources to provide for multiple families.
Common goals of planning for blended families include:
- Budgeting current income, which may be effected by alimony or child support.
- Education of children.
- Providing current income for a former spouse.
- Providing, at death, for children from prior relationships, step-children, and children from the current relationship.
- Future protection of current spouse.
- Protecting the assets of one or more families.
State law commonly gives certain rights to spouses — and, in some cases, ex-spouses — and children. A blended family in which the adults have no wills, or have outdated wills, may be unpleasantly surprised by the law. Contracts such as life insurance policies and retirement plans must be modified in the planning process to provide the desired income and beneficiary designations. A common family planning goal of income or transfer tax minimization becomes secondary to meeting the needs of blended families.
Prenuptial and ante-nuptial agreements are advisable, particularly where there is a disparity in wealth, potential future wealth through inheritance or power between the parties. Dialogue is mandatory. Separate property issues must be addressed. Long-term discretionary trust arrangements or testamentary trusts with carefully selected, independent trustees may provide part of the solution. Life insurance may be needed to meet required or desired objectives. Carefully and thoughtfully drafted wills are a must.
The unique nature of blended families requires unique family financial and tax planning approaches, including:
- A detailed understanding of current and prior relationships, family history, and current goals and objectives.
- Reasonable and achievable outcomes must be developed.
- Existing documents, contracts and state law must be considered.
- Existing and expected future resources must be identified.
Only then can creative planning and careful selection of resources be applied to obtain the desired outcomes.
SeekingNorth has worked with blended families and their attorneys, accountants, financial planners and insurance counselors to create workable plans to meet their needs and objectives, and we are prepared to work with your blended family.