Financial Literacy - Families and Finance
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Blended family finances need scrutiny

Estate planning

How couples plan to live together needs to be discussed, but an equally important consideration is what happens when someone dies.

Estate planning is an important component of preparing for a second marriage -- even for people who aren't vastly wealthy. Anyone with a house or family heirlooms or even just stuff you want to give to your kids should give some thought to planning for the inevitable.

Certified Financial Planner Scott Hill, senior vice president of Kanaly Trust in Houston, says that figuring out how to live together is much easier than dividing assets if someone dies or the marriage falls apart -- unless everything is laid out from the beginning, thoroughly planned and communicated.

"Typically during the marriage, the expense side of it will work out a little easier, as one spouse will be responsible for certain expenses and the other spouse will pay other expenses. However once those spouses are no longer in the marriage, how do those assets get divided? That is where a lot of the emotional aspects come into it," Hill says.

For a couple entering marriage with established families and assets, estate planning attorneys and financial planners have some useful tools to iron out the details of who gets what.

Among those are life insurance, QTIP trusts and personal article lists that can be included with your estate planning documents.

To keep assets separate, married couples need to pay close attention to the way bank accounts are held and titled.

"If they want to keep those assets for their own children from a previous marriage or of their own bloodline, you don't want to put those assets in the other spouse's name," says Gary Gilgen, a Certified Financial Planner at Rehmann Financial in Troy, Mich.

A QTIP, or qualified terminable interest property trust, is another useful instrument for blended families. QTIP trusts can provide for the surviving spouse for a period of time or perhaps through life, but ultimately the trust assets go to specified beneficiaries such as the founding spouse's children.

"They are a key component for any married couple, but especially when dealing with spouses and children of first and second marriages," says Gilgen.

For instance, QTIP trusts are often used when it comes to houses. The trust can specify the time or the conditions under which the surviving spouse can remain in the house. After that time is up or they get remarried, ownership of the house is passed to the deceased's children or whomever the trust specifies.

Not every situation demands a trust. Sometimes simpler methods of estate planning will do as well.

For instance, a personal articles list can be attached to a will. The list details personal possessions and the people to whom you would like to leave them.

"Along the way if you change your mind, just cross it off and initial it. And you keep a running list. All of these family heirlooms, personal property items -- you can give them to whomever you want," says Gilgen.

"That would circumvent a trust and any other issues," he says.

Insurance solutions

Life insurance can be vital in later marriages -- not only to provide for your spouse and children but also, as Ashley points out in her book, to satisfy any child or spousal support from previous marriages.

For basic estate planning, it can be as easy as determining how much you'd like to leave to each person and then buying enough life insurance to cover it, provided that you're in good health.

"Say each child is going to get $1 million. So we'll go out and buy three $1 million insurance policies and float each child. And then the surviving spouse can just have the remaining assets," says Hill.

"Ownership of an insurance policy is also important because if you yourself are the owner, (the insurance policy) will be included in your estate and could be subject to tax. So you'd want to consult with your estate attorney to determine the optimal ownership structure of any insurance," Hill says.
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