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  • Lynn K. Girvin, Esq.

Estate Planning for Blended Families: How Life Insurance Can Help

Blended families are becoming more common in today’s society, as more people remarry after divorce or death of a spouse. According to the U.S. Census Bureau, about 16% of children live in a blended family, which includes stepchildren, half-siblings, or adopted children. Blended families face unique challenges when it comes to estate planning, as they must balance the needs and wishes of their current spouse, their children from previous relationships, and their stepchildren.

One of the tools that can help blended families achieve their estate planning goals is life insurance. Life insurance is a contract between an insured person and an insurance company, where the company agrees to pay a lump sum of money to the beneficiaries of the insured person upon their death. Life insurance can provide financial protection and peace of mind for the surviving spouse and the children in case of an unexpected loss.

Here are some of the ways that life insurance can benefit married couples with children from previous relationships:

Provide income replacement: If one spouse is the primary breadwinner or contributes significantly to the household income, their death can cause a major financial hardship for the surviving spouse and the children. Life insurance can help replace the lost income and cover the living expenses, such as mortgage, rent, utilities, groceries, education, and childcare. This can help the family maintain their standard of living and avoid financial stress.

  • Pay off debts: If one spouse has debts that are not jointly held with the other spouse, such as credit cards, student loans, or personal loans, their death can leave the surviving spouse responsible for paying them off. This can reduce the amount of money available for the family’s needs and goals. Life insurance can help pay off these debts and free up cash flow for the family.

  • Cover final expenses: The average cost of a funeral in the U.S. is about $9,000, which can be a significant burden for the surviving spouse and the children. Life insurance can help cover these final expenses and avoid dipping into savings or going into debt.

  • Create an inheritance: If one spouse wants to leave an inheritance for their children from previous relationships, they may face some challenges if they rely solely on their will or trust. For example, if they leave everything to their current spouse, they may not have control over how their spouse distributes the assets to their children after their death. Alternatively, if they leave everything to their children, they may disinherit their current spouse or create resentment among the stepchildren. Life insurance can help create an inheritance for their children from previous relationships without affecting their current spouse’s share of the estate. They can name their children as beneficiaries of their life insurance policy and leave other assets to their current spouse. This way, they can ensure that their children receive a fair and timely inheritance without creating conflicts or delays.

  • Fund a trust: A trust is a legal arrangement where a person (the grantor) transfers assets to another person or entity (the trustee) to hold and manage for the benefit of one or more persons (the beneficiaries). A trust can help blended families achieve various estate planning objectives, such as avoiding probate, reducing taxes, protecting assets from creditors or lawsuits, providing for special needs children, or controlling how and when the beneficiaries receive the assets. However, creating and funding a trust can be costly and complex. Life insurance can help fund a trust by naming the trust as the beneficiary of the policy. This way, the grantor can transfer a large amount of money to the trust upon their death without paying income or estate taxes. The trustee can then distribute the money according to the terms of the trust.

As you can see, life insurance can be a valuable tool for estate planning for blended families. To choose the best type of life insurance for your blended family, you should consider your needs, goals, and budget.

Call me and ask about how life insurance may help with your blended family estate planning. (714) 619-4145.


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