Blended Families Create Estate Planning Challenges

An increasing number of children in the U.S. live in blended households, meaning divorced parents are remarrying and forming new familial relationships. This creates estate planning considerations that many high net worth consumers may not be prepared to address. Financial professionals can be trusted advisors in this situation, and can offer solutions on how life insurance can be incorporated into a plan that ensures all of a client’s beneficiaries will receive the benefits they deserve when the client passes away.

A newer issue

While people have had blended families throughout history, the phenomenon is more common today. The U.S. Census reported that 4.3 percent of children were stepchildren in 2010. While that is a relatively small percentage of the whole, this arrangement is more common for high net worth families. According to a new UBS Wealth Management survey, 14 percent of high net worth households have a blended family situation, which means that some of a household’s children are from past relationships.

In many cases, these families experience a smooth integration between the children and their new parents, but there is also the potential for lasting conflict that makes it difficult for people to properly distribute their wealth.

A source of discord

While a poor connection between parents and their stepchildren is not guaranteed, it is common. More than 60 percent of the high net worth individuals in blended families that UBS surveyed indicated they feel their stepchildren do not fully accept them. That disconnect can have a lasting impact on how money gets distributed following a person’s death.

The law firm Krugliak, Wilkins, Griffiths & Dougherty pointed out that problems can occur when one head of the household acts as the executor of their spouse’s estate. This head of household may choose to exclude certain children from the estate distribution process, regardless of the deceased spouse’s wishes.

Financial professionals should engage clients about ways to ensure their money is distributed appropriately. Proposing certain estate planning options that remove control from a spouse or other executor to guarantee the client’s estate plan is carried out.

Blended families may have different estate planning concerns.

Blended families may have different estate planning concerns.

Insurance and trusts 

High net worth clients can use life insurance policies with named beneficiaries and irrevocable trusts that act as policyholders to create a system that distributes wealth exactly as they wish when they pass away. Insurance products can also be a useful tool that provides consistent retirement income for these consumers.

In the UBS survey, 44 percent of high net worth consumers in blended families said they underestimated how much their new children would cost them over time. That can be a serious issue for a client who wants to maintain their current lifestyle into retirement.

For many high net worth clients, it’s important to retain liquid capital that can be invested for larger monetary gains. The presence of children can make it harder to keep that money on hand, and that may decrease the amount of cash that a person has for retirement expenses. Insurance products, such as annuities and cash accumulation life products, can give clients the steady income they need to retain their current lifestyle in retirement and provide for their children.

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