More Blended Families Tackle Tricky Financial Planning

In suburban Baltimore where I practice I have been seeing many more couples in second marriages who need help to clarify their estate planning and resolve issues like who pays for their kids’ college.

But I have to prod them.

People want to duck it. There are competing interests by the nature of it. No one brings it up. I have to ask.

Furthermore, most people mistakenly think they’re set because they have wills and have named beneficiaries for their retirement accounts and life insurance policies.

Planning is emotionally fraught because one spouse often brings the bulk of the assets to the marriage. The husband may have a big IRA while the wife has relatively little. And there are often two—and sometimes three—sets of children of various ages.

People don’t want to admit that ‘I don’t really trust you after I’m gone.’ One spouse wants to protect the rights of his or her own children, while the other doesn’t want to have to answer to a trustee. You’re on the opposite sides of the table even if you have a wonderful relationship. It’s difficult, but not doing anything is worse.

It usually takes a two-hour meeting in her office for a couple to hash out the issues and agree on a plan. I then draft a detailed letter they can take to an estate attorney.

If there’s enough money to go around, I usually recommend giving some cash or securities to the children on the first death. I also usually advise setting up a revocable marital trust and a residual trust for the survivor.

Beneficiaries for retirement plans like IRAs and 401(k) have to be chosen correctly so they’ll fit in with the overall plan. Sometimes, it works best to leave the entire IRA outright to the children; other times, the best solution is making a trust the beneficiary.

For instance, I recently helped set up a trust for a divorcing couple who each had been married previously. The trust for the husband’s IRA specified that his ex-wife would get all income and some principal for life, and on her death, the remainder would go to their children equally.

Lyn Dippel, CFP, is a senior financial planer and lawyer with Financial Advantage, and can be reached at ldippel@financialadvantageinc.com