Client outcomes

Financial planning tips for blended families

January 04, 2024
A blended family gathers at the table.

Key Takeaways:

  • Financial planning can become a lot more complex with blended families because you’ll have to account for exes and children from multiple family units.
  • Blended families will need to consider retirement and estate planning, insurance, debt management and taxes a little differently than other families.
  • It’s estimated that about 40% of families in the US are considered blended.

When it comes to blended families, financial planning can become a lot more complex. Although the US Census data doesn’t track stepfamilies specifically, it’s estimated that around 40% of families in the United States would be considered blended.2 A blended family is typically defined as a couple and children from their current and previous relationships. With the potential for multiple sets of children and ex-spouses, and different levels of financial resources, there’s a lot to consider. When two people marry and bring children from previous marriages, managing blended inheritances, ensuring fair distribution of assets, and avoiding potential conflicts will need to be considered.

Estate planning with a second marriage

Estate planning becomes a bit more difficult with a second or even third marriage. There may be children from previous relationships to consider, as well as new spouses and their respective children. Therefore, a well-structured estate plan is necessary to ensure that all family members are taken care of and that potential disputes are minimized. Here’s a practical piece of advice: encourage your clients to have open discussions with their spouse and all children involved as soon as possible. Transparency can help avoid misunderstandings and ensure that everyone’s expectations are aligned.

A will designed specifically for a blended family—often referred to as a blended family will—is a crucial tool for ensuring that all parties’ needs and wishes are met. It ensures that assets are distributed according to the deceased’s wishes rather than default inheritance laws, which may not always be fair or in line with the individual’s desires. For instance, your client may wish to leave their home to their children, but also ensure that their current spouse can live there for the rest of their life too. In such cases, a life estate could be set up, allowing the spouse to live in the home until they pass away, at which point it would transfer to the children.

Insurance for blended families

Life Insurance

With the addition of new family members, it’s important to reassess the coverage amounts and beneficiaries on life insurance policies. This ensures that everyone, including stepchildren and new spouses, is included and provided for in the event of the policyholder’s passing.

Health Insurance

Blended families often have different health insurance plans and coverage requirements. It is essential to review and compare the options available to ensure that all family members have access to necessary healthcare services and that there is no duplication or gaps in coverage.

Retirement planning and long term care considerations

Retirement planning for blended families involves adjusting savings strategies to meet the needs of a larger family. This may include factors such as providing for stepchildren, considering multiple sets of parents, and addressing potential conflicts in estate planning. It’s important to communicate openly and work together as a family to ensure that everyone’s financial goals and aspirations are taken into account for a secure and comfortable retirement.

As blended families may have different financial obligations and support systems, it can also be helpful to evaluate long-term care plans soon after the new marriage. This includes considering the potential need for assisted living, nursing care, or in-home assistance for aging parents or stepparents. Updating these plans helps ensure that everyone’s long-term care needs are addressed and financially protected.

Debt management

When one or both partners bring significant debt into the new family, they’ll need to establish a clear and effective strategy for debt management. This may involve creating a budget, prioritizing debt payments, exploring debt consolidation options, and seeking professional guidance if needed. By addressing and actively managing debt, couples can work together toward building financial security for their future together.

Tax implications

Blending families can also have significant tax implications for all parties involved. One key area to examine is the treatment of alimony payments and child support. Depending on the specific circumstances, these payments may be deductible for the payer and taxable for the recipient.3 Additionally, determining who can claim dependents for tax purposes can also be a complex matter that requires careful consideration from both the birth parents and stepparents. Your clients can consult with a tax professional to ensure that they understand and comply with all relevant tax laws and regulations as members of blended families.

Final thoughts

While this guide provides an overview of key considerations when planning for a blended family, it is not exhaustive. Circumstances will vary so what works for one family may not work for another. It’s important to stress to your clients that professional legal advice should be sought in all matters relating to wills and estate planning. In conclusion, guiding your clients through financial planning when they have a blended family can be more than just managing assets; it’s about fostering harmony within their family for years to come.