Ep #156 - Second Marriages, Adult Children, and Thoughtful Estate Planning

[00:00:00] Ben Haas: Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts now.  

Adam Werner: All right, So today we're gonna get into estate planning specifically for blended families. 

[00:00:36] Ben Haas: Yeah. 

[00:00:36] Adam Werner: Right? We've been seeing. I feel like we've talked about this in other podcasts, right? The statistics show 50% of marriages end in divorce, which then usually means that there, there might be a second act to come. 

Yeah, and we certainly see that in our experience, right? In working with retirees and pre-retirees, that idea of a blended family, it just adds more complexity. There's more moving pieces, there's potentially more people involved. And it's not necessarily when we talk about the estate planning side of things, you know, wanting to document for clarity's sake because we believe that, you know, clear is kind, clarity is kindness. 

It's not about mistrust, it's just about clarity and expectations, so that if and when you're not around, however you would want to see things go, that's how it goes. And then there aren't these unintended consequences just, again, just due to the complexity of the situation. 

[00:01:25] Ben Haas: Yeah. So who, who we're talking about here, when we're thinking about blended families and you hit on it. Divorce drives a lot of that. Sometimes it's a premature death, and then we're, you know, finding new relationship later in life. But that's really what we're focusing on here, that you're, maybe you've amassed some wealth or you saved some wealth at this point. You're either recently retired or near retirement, and now this is a phase of life where you're again bringing somebody else into the fold who may have adult children too. 

So, I can speak from experience, right? My mom, unfortunately lost her mom when she was pretty young, a teenager. So I have my granddad, her dad, but then I also had my gram, who I only ever knew as my gram. But that was my grandfather's second wife, and she had her own children too. So when she passed away last year, you know, now I was getting to uncover, kind of see under the hood, the planning that they did to make sure that he was taking care of her after he had passed away, that those assets went there, but that there was a very thoughtful design to then how those assets wouldn't exclude my grandfather's children, my mom and her three siblings. 

[00:02:32] Adam Werner: Yeah. 

[00:02:33] Ben Haas: And that can sometimes happen if there isn't some proactive planning. 

So what we're talking about here again is, is people later in life coming together and needing to be very thoughtful about how they're gonna serve each other, and then be, I'm gonna use air quotes if nobody's watching on YouTube. Like, use the fair word for when things maybe need to be distributed at the end. 

[00:02:53] Adam Werner: Yeah. So you used the word thoughtful twice, and I'm so glad you did, because I think that's just a, that, that's the perfect word in this instance. Thoughtful and intentional just around any of these conversations, right? 'Cause that ultimately is, our role in this process is just to help somebody either facilitate the conversation, figure out how would they want things to go and understand the dominoes to all of these things. 

So that thoughtful side, or the intentional side is again, just to avoid those unintended consequences that is, well, I'm gonna leave it all to my spouse and then when they pass away, it's gonna go to the kids. But if there is a blended family, it may not be that straightforward. I mean, we have an example. 

I'm thinking of one specific client situation, but it's not the only one, where they went through the process. And we'll get into maybe some of the strategy around this, but the idea of, again, adult children from both partners created a trust to essentially, let's take care of each other, right? 

One of the spouses passed. The money is there to serve the other spouse, but at that second passing, it gets split to all of the children equally in this instance. But doesn't have to be equally, but again, it's just, you're just avoiding those unintended consequences where now you disinherit some of the children, right? 

They're not included potentially. And if that's not the intent, then we would just wanna have things structured in a way to avoid those unintended outcomes. 

[00:04:17] Ben Haas: Or, I mean, maybe let's call a spade here, or avoid what could become tension, right? So if we think about what those core planning conversations sound like, you're hitting on the first one that I thought of too. 

That's survivorship protection. How do we take care of each other? First, because that's probably the, the priority. But then that, you know, even that it comes down to, well, what happens of the house? What if that's in one name and not both, you know, now how are we settling that? How do income streams play out if it's not just the assets that need to support each other? 

You know, if we are married, we are entitled to the higher of the two social securities, but is that gonna be enough or do we need the assets to maybe support? So there is some future projection here that needs to be thought about in the planning realm that isn't just end of life for both of us, but after that first one passes, how are we protecting that first survivor? 

[00:05:13] Adam Werner: Yeah, and this is one of those scenarios where I know we talk about planning and it's always the answer of, well, it depends and it's very situational. This, I think, is definitely one of those things because the idea of a blended family can mean so many different things to so many different people. 

The family dynamics can be wildly different, so this is definitely one of those situations that is very, or can be hyper specific, right? The strategies or the documentation around them can probably needs to be very specific. Something as simple as, okay, one, one spouse passes, is that all going to the other spouse and then eventually coming back to the kids? 

Or is there a goal to give some money to the spouse that passed their children at that first passing? Like just there's so many different layers that we kind of get into, and it really is situational, and I mentioned it earlier. It is, I think one of the things is just the beneficiary designation side of things, which we'll get into more specifically, but just that idea of disinheriting a child or children unintentionally, but it can work the other way too, right? 

You kept your original, you know, beneficiary designations prior to maybe your second marriage. Now that may not reflect how you would want things to flow after the second marriage. So again, just wanting to stay on top of these things, again, to avoid those unintended outcomes. 

[00:06:38] Ben Haas: Yeah, and it, some of that's just inventory of what was brought to the marriage. 

You know, whether some of that's gonna stay separate. Depending on the situation, everybody's different on, okay, what , what was my career like? Or how I was I earning income? Or what was my savings capability? How many children did I have versus, I mean, people go through different phases of their life where there are different goals and different needs and different things to do. 

So, what you brought to a second marriage, are we going to now commingle things or are we keeping them separate? Is it some of it's joint, some of it's not? Are we accumulating moving forward, aren't we? I just, you have to be very intentional about now what's the purpose of these different things? 

[00:07:21] Adam Werner: Yeah. And I know I mentioned it briefly, but that idea of beneficiary designations being so important in this process is because those supersede any estate document, right? Any will that would say, here's how I want things to go. Your beneficiaries, your beneficiary designations are going to trump that. That's gonna kick in first. 

So yeah, there again, there's just, there's layers to that. So beyond that, right, simple wills may be effective in this situation, probably not, but at the very least, we would just want to make sure that however your will is written, that the outcomes would be what you would want to see happen. We floated the idea earlier, that client scenario where maybe trusts need to be involved because there is a higher level of control, right? 

You can build in a lot of those, if this, then that scenarios that a typical, you know, will may not have that level of complexity to kind of get into. And then just something we'll get maybe a little bit more granular. There are certain types of trusts that you can establish. 

That you know at Spouse A passes, the money flows into this trust. The income from said dollars is there to support the surviving spouse, and then when that surviving spouse passes, the bulk of the assets then can go to whoever you name. At that point, it can be surviving children, it could be charity. You name it. 

The point is with trust comes a higher level of control that a simple will, may not be able to accomplish. 

[00:08:51] Ben Haas: We'll have conversations around that too when we think about the dynamics of those adult children. Right? And if they're there, and depending on how many there are, life takes on many forms. 

Odds are that one of them maybe needs more help than the other, or maybe would be, and more of a financial need than the other. So, when you think about this blended family, when people already have their own situations, maturity, their own relationships, what we don't want to have happen is, again, somebody passes away and now there's tension. 

Right? Now there's the perception from certain children versus the others on, well, is this favoritism here? Or, you know, mom's new husband is, was now just taking care of his own child who needed all this help when, hey, that wasn't maybe fair in their eyes. So there's just the kinda like emotional side of what comes with, I'll say, family baggage that you kind of wanna work through. 

And to your point. Then it's all about documentation. It's all about clarity of what were we trying to do while we were alive? What? What are these trusts then doing? Are we reconciling the balance sheets on who gets what at the end of things? Mm-hmm. It's just really important to have these conversations and make sure that everyone's kind of on the same page. 

[00:10:06] Adam Werner: Yeah. Yeah, and just, I'll say simple things. You kind of alluded to it, right? How are things titled? How are Accounts owned? Are they individual? Do they treat kind of things separately, or is there the true commingling of we own these accounts jointly. I have my, you know, retirement accounts that need to stay individual. 

They're gonna stay that way. But just that, that titling of accounts can have different outcomes on how the strategy may need to be structured or how the documents need to be written. The tax considerations on the estate planning side of things are usually what drive a lot of the financial outcomes. 

Right? But just the differences in how when somebody passes a non-retirement account, there's the step up in cost basis. So factoring that into what may be the best strategy for the family picture, right? And not necessarily just one of what may be, you know, many individuals involved. There's layers, there's nuance to all of these kind of factors. Even something as simple as inheriting a retirement account has its very specific subset of rules which may apply differently to different people in your family. So yeah, a lot of moving pieces. 

That we would just want to make sure that things are aligned in a way that fit with what they would want to see come out of their passing ultimately. 

[00:11:28] Ben Haas: Yeah. And how particular you want to get and how important is for you to think about, you know, sometimes fair is not always equal, but how efficient you kind of want to be with the estate? To your point, the more children, adult children that are at play here, the more likely that there is a widespread in maybe need or tax brackets .Right? Things you're mentioning. So do you wanna get hyper specific about, alright, well this account would be better left to this person who maybe is in a higher income tax bracket versus this account to another because they're in a lower tax bracket. 

Yeah. There's a lot of nuance that can go there. And I'll, you know, making a quick pivot here too. Yeah. When you, when we are thinking about this blended family, it's not about, I don't wanna say this, you know, about distrust, but it is about defining expectations on whether a pre or a post nuptial agreement is really gonna be important for this couple. 

You know, not that we are in the realm here of being lawyers for people, but again, when we take everything that we've just shared. There is a conversation that maybe could occur that says, yeah, this is how we're going to approach it, just so that it's crystal clear where we kind of started. 

[00:12:37] Adam Werner: Yeah, and I, maybe I should have shared this example earlier. 

We are in the early stages of meet, meeting somebody new who is dealing with, it's not necessarily the blended family scenario. The, when it comes to the estate document side of things, it's so critical to document the intentions and not just leave that up to like assumptions, right? Here's what I would want to see happen, but that's not clearly documented in a be beneficiary designation or in an estate document, right? 

Let's say the grandmother passes away, there are children and grandchildren involved, and the intent was, well, I'm gonna leave some to my kids and some to my grandkids, but if that wasn't officially documented somewhere and the family wants to carry out those wishes, there can be a lot of domino effects that we would just want somebody to be aware of before they decide to not maybe make their intentions documented clearly. 

[00:13:37] Ben Haas: Yeah, very fair. So I think we can probably summarize this in a little bit, like here are the, here's the role that we would have and the questions that we would want to kind of ask. And I do think it goes back to taking inventory on, on the front end, but then starting with the question like what do we deem if there is enough for the two of us as we are. 

Then what do we deem to be fair for each other and what do we deem to be fair to the family that we brought to now this, joint venture? 

[00:14:07] Adam Werner: Yeah. Yeah. And maybe I'll repeat myself again, but yeah that risk of not doing anything, that, that risk is ultimately that yeah. Decisions will be made on your behalf at the point where you can control it. 

You said it a few times, right? Just that potential. Conflict or that internal struggle between family members that I don't, I can't count, I can't come up with an example where we've sat with somebody and they said. They didn't want to lessen the burden on those left behind, right? Let's try to make this as crystal clear and as simple as pro as possible. 

So avoiding that accidental or unintended disinheritance. Putting the surviving spouse in a difficult financial position, right? Making if the intent is, if I pass, I want my spouse to be taken care of for as long as they shall live. Things need to be documented in a way to ensure that actually is carried out. 

And then of course, just the probate complications, right? If things aren't documented clearly, then that potentially opens it up for a contest, right? That any beneficiary named in that will or not could say, this is what this person who passed away, they told me this is what their intentions were. 

And if that wasn't clearly documented then it just, it can create a whole host of other, you know, dominoes and just a mess that doesn't necessarily need to happen. 

[00:15:30] Ben Haas: Yeah. I think you said it really well a little while ago here. Clear is kind, this is about removing some of the uncertainty that can come with, alright, what happens next? 

And the more people there are involved, right? The more conflict can arise, or whether that's perceived, you know, inequities or not. And sometimes that's just the case. So this isn't so much a, you know, a podcast about here's how we need to take blended families and do all the math to like, make things work out. 

No it's more about conversations that just hopefully prevent any conflict in the future. 

[00:16:02] Adam Werner: Yep. Yep. 

[00:16:04] Ben Haas: Thanks sir. Okay. 

[00:16:05] Adam Werner: Thank you. 

[00:16:06] Ben Haas: Till next time. 

[00:16:08] Adam Werner: See you then. 

[00:16:08] Ben Haas: Bye 

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening. 

Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. 

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