Who Gets What, When, And How Much? Planning for Blended Families

Winston Churchill said second marriages are a “triumph of hope over experience.” And if hope has won the battle against your experience, there are a few issues you should discuss with your new spouse when you’re planning your retirement strategy. Second marriages can make retirement and estate planning a little more complicated, especially around the very important questions of who gets what, when, and how much.

Getting Your Accounts in Order

All married couples have to decide how, and from where, they’ll take withdrawals during retirement. If one spouse is significantly older than the other, it may make sense to use the older spouse’s retirement savings account first, or take out money to cover a Roth conversion. It’s teamwork like this that makes retirement a little easier for married folks – but you’d better have a plan in place for how your division of retirement funds will affect your children when it’s time to inherit. Discuss in advance how much money you envision passing on to your heirs so you can plan accordingly.

Family Ties

Blended families come with more than a few complications, as I’m sure you’ve noticed. But when it comes to retirement and estate planning, the emotional issues can get caught up in financial issues to create quite the conflagration. Nothing eats at familial harmony more than the question of who gets what, and in what amounts. So the question you need to discuss with your spouse is: How do you plan to divide and distribute your estate among your families?

If you’ve married later in life, you might feel that your funds should go to your biological children, while your spouse’s funds should go to theirs. But if you’ve raised your spouse’s children as your own, a more equitable arrangement might seem more fair. You can choose to divide your assets equally, or in fractions, or let the kids put stickers on any heirlooms they want. Now, what about the assets you’ve accumulated during your marriage? I’ve seen people navigate these tricky waters any number of ways. The important part is to discuss it and have a plan.

One more very important estate issue is whether your funds pass directly to your current spouse, or whether children directly inherit – or a mix of both. If your children inherit your assets upon your death, that will significantly impact your surviving spouse’s retirement funds. On the other hand, you may want to ensure that your children receive their inheritance immediately, while providing for your spouse. There are many ways to do this, including setting up a bypass/survivor trust or creating a trust fund with life insurance.

As I said before, the most important thing is to have the conversation. You don’t need to have all the answers, but understanding where each of you stands on these issues will make it much easier for you – or your retirement planner – to create the best plan for you and your spouse.

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