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Common Mistakes In Blended Family Estate Planning

The blended family is the new prototype of American family. Remarriage-divorce's silver lining-is on the rise and it's become common for individuals to bring children from previous marriages into new ones. Step- and half-siblings abound. Parents parent each other's children. It's all part of the rather happy, if chaotic, game.

Life at home may be unruly, but it is important that blended families' financial affairs are clear and neat. Yet estate planning in such situations quickly becomes complicated. Spouses often want to provide for each other in their wills. Yet individuals also want to ensure their own children-not their stepchildren-are the ultimate beneficiaries of their wealth.

Unfortunately, many people fail to plan their estates adequately to protect such interests.

What's in a name?

According to an article in Forbes, one of the most common mistakes is to designate one's beneficiaries incorrectly. "Regardless of what a will or trust says," the article notes, "the asset goes directly to the primary beneficiary." What this means is that even if your will states that a particular asset-an IRA, or a house-should go to your child, if your spouse is listed as the primary beneficiary then your child will not receive the asset. Ill will and litigation are likely to follow.

A means of avoiding such scenarios is to name all your beneficiaries as primary beneficiaries, and lay out clearly what percentage of each asset your heirs are to receive.

How to build (a) trust

Establishing a trust is an important means to supplement a will and ensure ongoing financial security for one's spouse and children. Yet here, too, naming plays a crucial role-in this case, naming the appropriate executor.

For example, if one sets up a trust that provides income to one's spouse, but whose assets will ultimately pass on to one's children, it is imperative to find an impartial party to manage the trust.

If the spouse is designated as the executor, he or she may act in such a way to deprive the trust's assets of their value, and thus leave the children with little to inherit; if a child is named executor, he or she may invest in illiquid assets that provide the spouse with paltry income.

Other essential considerations

Protecting your family begins with protecting yourself. To ensure your wishes are realized, you must take care to state what they are. This applies to financial holdings as well as to medical care; establishing an advance health care directive is every bit as important as establishing a durable power of attorney. These tools allow a trusted individual to make financial and medical decisions for you in the event you become incapacitated.

As families evolve and take new forms, understanding how to protect your loved ones becomes more complex-and all the more necessary.

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