Top five biggest mistakes in blended-family estate plans

A blended family is one where at least one spouse has children from a previous relationship. Their estate planning needs can be quite different from those of families where all the children are from the current marriage. Failure to plan ahead for disability and death can have painful and expensive surprises for the family members which can be very different from the intent of the spouses. The following are some of the most common mistakes and omissions blended families can make.

  1. Not talking about finances and estate planning before the marriage
    Spouses can have very different expectations about inheriting from each other, particularly if either or both spouses have children.Unless the couple has a marital agreement, spouses have a strong legal right to inherit a certain amount from each other, based on the length of the marriage at death.These rights are different in various states.Federal law gives surviving spouses the right to receive retirement plans sponsored by businesses regardless of what a beneficiary designation or will say.
  2. Not planning for incapacity
    If either spouse becomes mentally incapacitated so that they cannot manage their financial affairs, the other spouse will likely need to or want to take over.If someone else would be better to fulfill this function (an adult child, sibling, or bank, for example) it will be important to plan ahead using powers of attorney and/or trusts to facilitate a smooth transition.If the couple makes no advance plan for disability, someone will need to petition the court to ask for a conservator appointment.In most states, a spouse has first priority for appointment unless the disabled person has previously appointed someone in writing to take over.This process is expensive, time-consuming, and unpleasant. Many judges are very reluctant to appoint a conservator for a person because this deprives the disabled person of his or her constitutional rights to property. The result can be that a person with diminished capacity can become a victim of fraud and exploitation.Planning ahead can avoid expense, emotional distress and vulnerability.
  3. Not realizing that the spouses will become liable for nursing home costs for each other
    Many people do not realize that Medicare does not pay for long-term care. Medicare does pay for “rehabilitation” with strict regulations, but not for custodial care.If the spouses do not have long-term care insurance, they will have to pay for their own nursing home costs.Medicaid (different from Medicare) will pay these costs under certain circumstances, but both spouses’ assets will need to be significantly spent down before one or both become eligible for Medicaid payment of these costs.Depending on the part of the country and the level of care needed, nursing homes can cost over $10,000 per month for one person.
  4. Not keeping beneficiary designations current
    Many people have significant value in retirement plans, life insurance and annuities.Some of these assets may have been acquired through employment many years in the past.It is very important to keep complete records of all of these assets and to review who the named beneficiaries are regularly. Every financial institution has stories about former spouses who are named as beneficiaries on insurance or retirement plans years after a divorce, with a former spouse getting the benefits rather than a current spouse or the children.
  5. Not deciding what happens to the marital residence after death of one spouse
    Will the surviving spouse have the right to continue to live in the couple’s primary home if he or she does not own it (or owns only part of it)?If the first spouse to die leaves his or her estate to children, will this mean the surviving spouse must move out of the house?How soon?If the survivor continues to live in the house, who will pay the expenses?What about repairs and remodeling?What happens if the survivor must move into a nursing home, even if they don’t plan to or want to?It is important to make a plan about the primary residence since houses cost money to keep and cannot be divided among various beneficiaries.

Originally published by ColoradoBiz Magazine.



Moye White