Those remarriages call for specific financial advice, especially when they involve minor children. While we primarily suggest all betrothed couples visit their financial planner ahead of the ceremony to map out a financial game plan, we also offer the following five general tips to help you and your family set yourselves up for success:
- If your spouse and his or her family will be moving into your house, consider putting it into a revocable trust, which will protect it during your lifetime. Then you can decide who inherits the house. Be careful about deeding the house to your children with the stipulation that your spouse live in it during his or her lifetime. This can become a tricky situation as the inheritors have little control over the maintenance of the asset they own.
- Create a trust if you want assets that you brought into the marriage to go to your children when you die. With a bypass trust or a Qualified Terminable Interest Property (QTIP) trust, your assets pass to your children, while your spouse can collect income and possibly some principal in an emergency from the trust during his or her lifetime. Consider carefully who you will name trustee, and make sure they are well suited educationally and emotionally for this task.
- Discuss how you will handle college loan debts. Legally, one spouse isn’t liable for the other spouse’s federal student loans and, if the spouse with the student loans dies, the surviving spouse does not have to pay them back. However, a significant portion of the joint income will be going to pay off that debt, so it is important to discuss plans to pay it down. Also, you need to be very careful about co-signing a private loan to pay off federal student loan debt, or taking out a second mortgage to pay it off, because then you are moving that liability squarely onto your own balance sheet. The best way to handle debt brought into the marriage is to agree to a repayment plan ahead of time.
- Draft new wills. It is important to select guardians for your kids. Take the time to make this decision carefully. You can’t predict the future, but you can look at things like health history and financial stability to determine an appropriate guardian. It is always difficult to think about someone else raising your child, but it is a decision best made by you. You are leaving your children vulnerable when you procrastinate making this important decision. And remember, should you see developments in your chosen guardian’s life that make him or her unsuitable for the task, you can always update your will.
- Check all of your beneficiary documents and make sure the current spouse is listed, if that is what your plans call for. Remember, these documents supercede your will, so the name listed on them is the one who will receive the funds upon your death.
While these second marriages and the blended families they create can be challenging, they also can be beautiful. Often, people emerge from a challenging first marriage stronger and more empathetic with a better developed marital skill set.
The trick is open communication, honest evaluation, a realistic game plan and the discipline to stick with all three.
If you or someone you know has specific questions about managing finances within a blended family, please contact us. One of our advisors would be happy to sit down with you to set up an appropriate plan.