The dynamics of a blended family, defined as one where at least one spouse has at least one child from a prior marriage or relationship, can complicate financial and estate planning because no off-the-shelf plans apply.

It’s important to contact your estate-planning lawyer to ensure complete review of all personal and economic aspects of your family and a resulting plan that works for everyone involved.

From designating account beneficiaries to updating wills and trusts, it takes attention to detail to ensure specific wishes are carried out properly. Effective, collaborative planning can address the family’s needs and goals while building trust and helping everyone move forward together.

A good place to start is with reviewing and updating beneficiary designations for life-insurance policies and retirement accounts. That’s a simple way to ensure that the proper beneficiaries are noted on all accounts and the proceeds from those accounts end up going to the correct individuals.

While any estate planning must be done on a case-by-case basis, the following are options to consider for blended families:

Reciprocal wills

Some blended families use reciprocal wills, where the assets pass outright to the surviving spouse, as their primary estate plan. They do this for the sake of simplicity and to keep their estate planning costs at a minimum. But this type of plan comes with some serious disadvantages. One issue is that it does not provide a great deal of comfort when there are children from a prior marriage, because the first spouse to die has no guarantee that the surviving spouse will provide for his or her children when the surviving spouse ultimately dies.
There are several ways the surviving spouse can defeat the intent of the deceased spouse even without changing his or her will, including making gifts of assets during his or her lifetime, changing beneficiary designations, and retitling assets as joint with a right of survivorship with his or her own children or even a new spouse, potentially leaving nothing to pass under his or her reciprocal will.
Another major disadvantage of a reciprocal will is that it is revocable. That means the surviving spouse can change it to favor his or her own children, charities or a new spouse. The surviving spouse also could deplete the estate by overspending and incurring debt, leaving nothing for the children of the deceased spouse.

Non-reciprocal wills

An option that does not require reliance on and trust in the surviving spouse is to have each spouse create a non-reciprocal will, or wills that are not exactly the same and don’t leave the estate outright to the surviving spouse. Under this approach, each spouse could leave a percentage or dollar amount to the surviving spouse and a percentage or dollar amount to be divided equally between his or her own children, but not the children of the other spouse.
It can be difficult to determine at the time the will is made the amount needed to provide for the spouse and an appropriate amount to go to the children, so this type of estate plan likely requires monitoring and updating over time.

Life insurance

A third alternative is to purchase life insurance to provide for the surviving spouse or the children of the first spouse to die. The advantage with using life insurance is that it guarantees, as long as the policy is active, that the children will receive something upon the death of their parent. Life insurance policies tend to become increasingly expensive as you grow older, however.

Life insurance provided by an employer can be used, but there are limits to the amount an employer provides. Also, coverage usually terminates when employment ends and may become unavailable if an employer files for bankruptcy. Therefore, relying solely upon employer-provided life insurance may not be the best alternative.

Testamentary trusts

Creating a testamentary trust that becomes irrevocable upon the death of the first spouse meets the dual goals of providing for the surviving spouse during his or her remaining lifetime and then, upon the death of the surviving spouse, passing the remaining assets to the children of the first spouse to die.

Under this approach, a trustee will have to be appointed. Common options include the surviving spouse, a child of the first spouse to die, a third party or a trust company. Appointing the surviving spouse or a child of the deceased spouse has a greater risk of creating family friction, and therefore a third party or a trust company might be more appropriate.

Whichever option you chose, any estate plan should remain dynamic and adapt to change when necessary, particularly given the added complexities of a blended family.