Estate Planning For Non-Traditional Relationships - Strategies
Children Of Another Relationship
It is not uncommon to find a newly married couple that have children from a previous marriage, or spent several years as a single parent prior to the current relationship.
In order to make sure that children from previous relationships are included as part of the estate plan, the parent should make sure that they keep their will and beneficiary designations up to date on all financial documents. If they remarry, they should clearly explain their estate distribution wishes to their new spouse, but still direct their estate plan to include the children if they should desire.
Parents Wanting to Financially Take Care of Previous Children:
- Utilize Joint Tenancy with Rights of Survivorship if the parent wants to have joint ownership of the asset with the child, and the parent wants the child to get the asset at their death.
- The parent might want to consider a trust with the new spouse as the income beneficiary and the children as corpus beneficiaries.
- An irrevocable life insurance trust (ILIT) would be another good alternative to leave the children a life insurance legacy in trust.
A cohabitation agreement is very similar to a prenuptial agreement, as it is a form of a legal agreement between a couple that has chosen to live together. It doesn't matter if they're the same sex or opposite sex, they just want to protect each of their interests should something break down between their living arrangement.
The document would typically cover items like the sharing of expenses, child care arrangements, mutual financial support, payment of debts and ownership of specific assets (especially if purchased together).
The adoption of a new child is another example of a life-changing event. Anytime you add a member to your family, lose a family member, marry, divorce or have another major event in your life, you should revisit your estate planning documents and beneficiary designations.
With the adoption of a new family member, you should consider various child care documents for babysitters, daycares and school trips or team sports (out of town events). It is important that others who are in a child care position for your child understand their dietary needs, allergies, medical requirements and other contact information in the event of an emergency.
While listing "godparents" for a child seems like a pretty neat idea, it holds very little power in the legal system. Guardianship is determined by the state courts, and usually runs to the family line first.
With the growing advocacy for the legal recognition of same-sex relationships, it's become more relevant that financial and estate planners study the different techniques that can be utilized to meet the needs of these couples. Most states still do not recognize same-sex relationships in a legal manner, so that makes estate planning an even more important and often overlooked factor.
What needs to be done?
- Update or create a simple will – Without this document, states will dictate that your assets pass to your direct bloodline family (parents, brothers, sisters, etc.)
- Update your beneficiary designations – Individual retirement accounts (IRA), life insurance, annuities and 401(k) plans all should be updated.
- Utilize the TOD and POD features – Transfer on death (TOD) and payable on death (POD) account beneficiary designation features.
- Employ Joint Tenancy with Right of Survivorship – At death, the property passes to the surviving party to the relationship.