8th May 2015

Here’s what to know — and avoid — in estate planning for when two families get cobbled together into a new one. These lessons apply to all kinds of families, but are especially acute when stepchildren are involved.

Statistics paint a dynamic picture of this domestic phenomenon:

* 60% of all remarriages eventually end in legal divorce.

* About three in every four divorced persons eventually remarry.

* Some 43% of all marriages are remarriages for at least one of the partners.

* Almost two out of three (65%) of remarriages involve children from a prior marriage.

The first step to creating an estate plan includes open, honest communication with your children and spouse to determine what they expect from you financially. In addition, you can use a number of strategies to help ease familial tension.

Pre- or postnuptial agreement. If you’re part of an engaged or married couple, discuss what financial support you both can expect from each other, especially when children from previous marriages and relationships are in the picture. Then draw up the right documents.

Prenuptial (before marriage) and postnuptial (after marriage) agreements provide a detailed outline of each party’s rights and responsibilities during the marriage and in the event of divorce, including such items as payment of expenses or living arrangements.

Though laws of individual states govern enforcement of prenuptial agreements, they are typically recognized nationwide.

Beneficiary designations. Regularly update designations on such assets as your retirement accounts, life insurance policies and annuities. Divorce and remarriage are two major life events that absolutely necessitate these updates.

These designations dictate that, after your death, specified assets go directly to the beneficiaries. The biggest value of these direct transfers: bypassing probate, the legal (and often lengthy and sometimes pricey) process of distributing property in an estate.

The last thing you want is to unknowingly list your former spouse as beneficiary. Reviewing and adjusting your beneficiaries after a life-changing event ensures that assets go to heirs you want.

Revocable living trust. Another vehicle to help direct who receives your assets, this trust enables a successor trustee to carry out your wishes if you die or are incapacitated.

If you’re part of a blended family, a revocable trust can be particularly beneficial because you can change the document while you are still alive. Although assets in a revocable trust count as part of your estate when you die and therefore incur estate taxes, your assets avoid probate and are not a matter of public record.

Different states have different requirements regarding creation, execution and scope of these documents.

Will. You use this document to specify how your wealth will be distributed after your death; you can also amend your will at any time during your life.

Added advantages of a will: You can name a trusted, third-party executor to make fiduciary decisions in your beneficiary’s best interest and you can name a guardian for any minor children.

The techniques discussed above are just a few of the most common ways to resolve inheritance issues for blended families. Others include qualified terminable interest property (QTIP) trusts that can increase your control over the assets and distribution after your death and, later, the death of your spouse if he or she is the beneficiary. In short, what remains of the assets distributes to named heirs after the death of your surviving spouse.

Estate planning carries complex and significant legal and tax implications. Consult an estate planning attorney or tax professional to help you.

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