Blended families have become the new norm as the baby boomer generation leads the nation with record high numbers of divorce and remarriage. The modern family dynamic often includes remarried parents, creating a blended family with their children and step children. When considering estate planning options, the question of who will inherit is significant and requires a thoughtful answer.
When deciding how to divide a lifetime of assets, a person will often want to provide for the surviving spouse while leaving a portion of the assets to their children and possibly step children. With multiple people in line to inherit, clear and current beneficiary designations are essential.
The name on the form matters
Beneficiary designations are crucial in estate planning and will trump what is listed in a will if the names differ. For instance, if a retirement account beneficiary lists a child, but the will leaves the assets in the account to the spouse, the assets will still be given to the child because the beneficiary designation was not changed. In cases of remarriage, it is important to update beneficiary designations to prevent a former spouse from inheriting.
Primary and contingent beneficiaries
For assets such as retirement accounts and insurance policies, the primary beneficiary named will inherit all the assets, whereas contingent beneficiaries will not inherit anything unless the primary beneficiary chooses to give the contingent an amount. A contingent beneficiary will only inherit automatically if the primary beneficiary dies before or at the same time as the grantor. It is possible to have multiple primary beneficiaries and distribute assets between them, often using a percentage rate to distribute the assets.
While every blended family is unique, the simplest way to maintain family harmony is to have a comprehensive estate plan in place and then discuss the plan with family members. These conversations may seem awkward or uncomfortable, but a clear understanding of how assets will be divided can prevent hurt feelings and anger later on.