Roughly 23% of U.S. adults who are presently married have been married before. Due to those previous relationships, spouses may face complex wealth-transfer-planning and estate-plan questions.
“It gets complicated when it’s a second or subsequent marriage, and they’re each bringing additional beneficiaries, for example, children or elderly parents, to the relationship,” says Deborah Lauer, Planning and Life Events Specialist with Wells Fargo Advisors. “They need to be concerned that everybody is taken care of.”
These five do’s and don’ts will help you make sure the wealth transfer plan for your blended family meets your goals and needs.
1. DO start early. Ideally, two people considering marriage would have candid conversations about finances before the wedding. Among the topics for discussion: sharing financial obligations, such as paying the kids’ college expenses, in your new blended family.
“Communication is the key,” says Scott Smith, Planning and Life Events Specialist at Wells Fargo Advisors. “Open and honest conversation goes a long way in any relationship, but it’s probably even more important here.”
Your move: If there’s a large wealth disparity between you and your new spouse, you may want to consider a prenuptial agreement, Smith says.
2. DON’T go it alone. Professionals can help you and your spouse-to-be work through any financial issues related to your blended family. A lawyer, financial advisor, and tax specialist can help you make sure you’ve asked all the important questions, and they can provide you with options for next steps.
Because these issues can be emotional, a marriage counselor, religious advisor, or therapist can also sometimes help. “If you’re not careful, emotional issues can upset your planning,” Smith says.
Your move: Identify the advisors you and your spouse-to-be already work with who could help you. Then gather all your financial information so you can review it with professionals you both trust.
3. DO make sure you have basic estate-planning documents completed. One of the most troubling things that can happen in a subsequent marriage is to discover an ex-spouse still has legal authority over assets or medical decisions after something bad happens.
“You want to put the proper legal structure in place so you know who has the authority to manage your assets if you become incapacitated or settle your estate upon death,” Lauer says.
Your move: These documents include a basic will, a durable power of attorney, living will, and a health care power of attorney, Lauer says. High-net-worth individuals may also consider a revocable living trust and other more advanced planning strategies. See “Your Estate-Planning Checklist” for more.
4. DON’T forget to update beneficiary information. New couples need to update beneficiary information on life insurance policies and retirement assets, such as 401(k) accounts, IRAs, and annuities.
“It’s really premarital planning and knowing what to do to protect things,” Smith says. This includes protecting your children and protecting your new spouse.
Your move: Review insurance policies, retirement accounts, and other assets that name a primary beneficiary and contingent beneficiary. Update them to reflect your new relationship. Consider discussing beneficiary designations with your estate planning attorney so the management and distribution of all of your assets is coordinated.
5. DO review and update your estate plan periodically. Even if all these issues are settled before the marriage begins, make plans to periodically review your plan with your advisors. Life events, such as children graduating from college or the birth of grandchildren, may signal the need for an update.
“You can go back and change it as needed, so the plan keeps up with the changes in the family,” Lauer says.
Your move: Ask yourself what has changed in your life (or your spouse’s life) since you last reviewed your estate plan. Is it time to sit down with an advisor to update your plan?
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