Stepchildren, remarriages, and ex-spouses: For the modern wealth management client with a blended family, planning to transfer wealth presents a web of complexity. There are many more stakeholders, and their interests may conflict. Fortunately, financial professionals have tools and wealth transfer strategies that can help couples be intentional about the use of their assets in an estate plan.

Why Focus on Estate Planning for Blended Families

A thoughtful plan and good communication can go a long way in heading off conflict in large families. However, research shows that two out of three Americans don’t have a will.¹ And most Americans are uncomfortable talking about their plans. A meager 26 percent of investors surveyed by Cerulli believe their heirs could be deemed “very well informed” about their intentions for their wealth.²

With inheritance expected to account for 83 percent of the more than $84 billion in U.S. wealth transfer by 2045, the stakes are high for financial planners who want to build multigenerational practices.

Here, we take a closer look at common issues that can occur with estate planning for a blended family. By that, we mean a family that includes the children of a previous marriage of one spouse or both. Because these family structures are complex, U.S. government statistics don’t pin down an exact amount of blended American families. However, a 2019 Census Bureau survey estimates that there are 2.4 million stepchildren in the U.S.

Read on for actionable advice, as well as resources to support your clients in opening the lines of communication when it comes to creating an estate plan.

1. Providing for Children from Previous Relationships

Many wills are simple in structure, designed to leave a client’s assets to their surviving spouse. However, if that client has a blended family, the children from a previous relationship risk being overlooked in such a scenario. Though it’s not a pleasant thought, it’s possible a surviving spouse can change an estate plan to prevent stepchildren from inheriting if the plan is not carefully designed.

There are several ways to ensure a child is not disinherited after you’re gone. Actions like creating a trust, making a child the beneficiary of a life insurance policy, or making a child a joint owner of a piece of property are a few strategies. In collaboration with attorneys, specialists in trusts and estates, and your clients, you can tailor a plan that avoids family strife.

2. Tackling the Potential for Legal Challenges

In many states, your current spouse is entitled to a third of your estate regardless of what your will says. If you were to leave them 20 percent in your will, a legal challenge from your spouse would likely prevail. There are some exceptions when a prenuptial agreement is present.

Another scenario is when a client remarries, but never updates the estate plan they made with their first spouse, or perhaps never updates their beneficiaries. The titling of property can also cause issues down the line if an ex-spouse remains as owner.

Many financial planners make a check of beneficiary designations and titling a regular part of their service calendar for this very reason. A financial planning platform with a secure document vault can encourage clients to share the big picture of their estate planning with you.

3. Avoiding Family Conflict Over Property

Squabbles over family heirlooms are a common issue. When it’s a larger, blended family, the potential for conflicting claims to that personal property multiplies.

Having open discussions about how your clients wish to distribute items among family members can pave the way for a smoother transition. If a client knows that a family member wants a specific heirloom, another option is early gifting. This ensures that special items go to their intended recipients and removes them from the estate.

Getting appraisals of particularly valuable items can also provide clarity and allow for more even distribution. Once a plan for gifting personal property has been determined, your client may consider a family meeting to explain the plan.

Resources to Navigate the Conversation

It’s a big job to help your clients protect loved ones and intentionally shape their legacy. Thankfully, you don’t have to do it all alone. Our Candid Conversations: Estate Planning and Couples, Money, and Conflict guides includes the insights of experts in the eMoney Financial Planning Group, as well as financial planners like you. Each guide breaks down financial psychology topics in a practical way to help you navigate these conversations with confidence. With research showing a glaring lack of preparedness for the Great Wealth Transfer, the time is now to guide clients toward better outcomes.

Sources:

1. Caring.com. “Wills & Estate Planning Study,” April 2022.

2. Cerulli Associates. “The Cerulli Edge, U.S. Retail Investor Edition,” February 2023.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

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