The Brady Bunch: Beneficiary Designations and a Blended Family
Remember the Brady Bunch? Everything in their life always seemed to work out just fine in the end. But, what would have happened if one of Mike's designs was faulty, a bunch of people died, the pressure was too much for his caring heart and he died of a sudden heart attack? Well, Mike, who was prepared and loved Carol with all his heart and soul, had a will and substantial insurance policies. In the will, he left everything to Carol and he also named he the sole beneficiary of his insurance policies, pension, retirement accounts, etc. His beloved surviving spouse now OWNED his entire estate. Now remember, half of those six children (i.e., the boys) were not Carol's. Any chance this episode might not end so well in real life for those boys?
Why You Need to Think Before You Sign
Now let us discuss real life. Whether you are in your first marriage or have remarried after a divorce, blended families are a common part of modern society. That being said, it is important to understand that subsequent marries and blended families create important and unique issues when it comes to estate planning.
You may need to account for a prior spouse who is still caring for minor or disabled children, and also possibly make sure your current spouse and any children you had together – and any step children – are also taken care of after you pass away. The good news is that estate planning can take all of these factors into account. This is true whether you are putting together your estate plan for the very first time or if you need to update your current estate plan due to a change in your circumstances.
Setting Up a Trust
It is common for married couples to leave everything to one another in their wills, or list their spouse as the sole beneficiary of any assets that allow for this designation. The result is that if one spouse passes away before the other, the surviving spouse will own all of the assets left behind outright. While this may work for some families, when it comes to blended families this strategy may inadvertently disinherit children or spouses from a prior marriage. One way to provide for a current spouse without leaving out children from a prior marriage is to place some or all of your assets in a trust that the surviving spouse can use during his or her lifetime. Once the surviving spouse dies, all of the property in the trust can go to the children from your current and prior marriage/relationship, or to other intended beneficiaries.
Beyond Simple Beneficiary Designation
The plain and simple beneficiary designation on assets (like life insurance, bank and investment accounts, etc.) that allow for outright distribution to the surviving spouse can inadvertently wreak havoc on an estate plan when a blended family is involved. These complications can apply to a couple who has children from prior marriages, someone who remarries late in life, or someone on their second or third marriage and beyond.
For example, you may purchase a large life insurance policy and designate your current spouse as the sole beneficiary and pass away shortly thereafter. Since the beneficiary designation takes precedence over your estate planning documents, the proceeds of the life insurance will not be placed in that trust and will be distributed outright to your current spouse. If you had instead named the trust as beneficiary, you could have determined when and how the funds would be spent for the benefit of your heirs. As an example, the funds could be used to provide support for your surviving spouse during his or her lifetime while also allocating a portion to help your children to pay for college, finance a down payment on a first home, pay for a wedding, or start a business. The key is that the money can be available for your spouse, but not with unfettered control, and still available for your children.
Ensuring Your Wishes Are Followed
While you hope that a surviving spouse will honor your wishes even if they are not in writing, you may accidentally disinherit your children. Instead, the Law Office of Robert P. Newman will use your trust as the centerpiece of your estate plan and make sure to coordinate and align the beneficiaries on your assets so that your intent will become the reality once you have passed away. Call us at 301.892.2713 and let us explain the options available to you and put together a plan that best suits your family’s needs.
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