Blended Family Issues and Keeping Things Equal

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bg5
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Blended Family Issues and Keeping Things Equal

Post by bg5 »

Hey Gang,

A couple of quick things on me.
-38 years old
-Teacher with an $80,000 a year salary (wife is also a teacher who makes $75,000)
-We both will have pensions that will pass over to the other 100% upon death and we are both allowed to collect SS along with our pensions
-We currently put away $31,000 annually into retirement in Roth IRA, 403B, and 457B.
-Total Retirment accounts is $200,000
- I am divorced and have remarried
-Two kids from first marriage (I have 50% custody and they spend equal time with us) ages 11 and 7
-Brand new baby with second wife that is 5 days old :)
-We will not be having any other kids
-WE live in LCOL area and we owe $235,000 on a home worth $550,000
-Only other debt is a boat at $35,000

I have a 1.2 million dollar life insurance policy on myself and my only concern is making sure my two original kids would get their fair share of stuff if I die.

So currently here is how I have things set up in case I die with life insurance

300k to my mom (she will give to child 1 from original marriage
300k to my dad (he will give to child 2 from original marriage
600K to new wife and child

For my retirement accounts its the same
Child 1 gets 25%
Child 2 gets 25%
Wife and new Child get 50%


So what else do I need to do. I am a realist and would think if I died that at sometime my wife may get remarried because nobody wants to live the rest of their life by themselves. I just want to make sure that whoever she would marry would not impact my kids from my original marriage. Is there anything I can do to protect other assests to make sure that when she dies my kids get their fair share?

Do I need a will or a trust? REally not sure where to start and what I need to do.
dbr
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Re: Blended Family Issues and Keeping Things Equal

Post by dbr »

I am not an attorney or even an expert, but my first reaction is that this absolutely begs a visit to an attorney. A red flag is the "give to my mom and dad part." That sounds like a homemade trust when you should have a real one.
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ResearchMed
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Re: Blended Family Issues and Keeping Things Equal

Post by ResearchMed »

dbr wrote: Mon May 27, 2019 9:54 am I am not an attorney or even an expert, but my first reaction is that this absolutely begs a visit to an attorney. A red flag is the "give to my mom and dad part." That sounds like a homemade trust when you should have a real one.
Agreed.

That jumped off the page and bonked me in the head!

What if one of them spends it all? And maybe the other doesn't?
Or they both spend it all...
And meanwhile, second wife and third child have all of what is originally planned.

For blended families, you really need an attorney.
There are too many "what if's", even without this little ploy.
These include what if one of the beneficiaries dies early, etc. It can get very tricky very quickly and end up not being what you would have intended.

RM
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8foot7
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Re: Blended Family Issues and Keeping Things Equal

Post by 8foot7 »

You can leave to your kids in a testamentary trust that springs into action when you die. Many problems with leaving amounts you're meaning to go to one party with another party who then may have all sorts of things and life events happen to them (death, remarriage, etc.). What happens if you die, leave 300k with your mom for your kid, and your dad then dies and your mom remarries and then dies as well? Then an unknown party to you has the 300k and your kids are out of luck.
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bg5
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Re: Blended Family Issues and Keeping Things Equal

Post by bg5 »

So what type of an attorney do I need to talk to???? An estate attorney???

Any rough estimate the cost that I should expect?
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CAsage
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Re: Blended Family Issues and Keeping Things Equal

Post by CAsage »

You definitely need to set up a legal trust for the future of your children. Parents are awesome, but you have no idea what their mental or physical condition will be in, or who might be impacting that in the future. Buy a copy of a Nolo Press book on estate planning to educate yourself, then go see a lawyer (and it's okay to call around for prices). I would also look more into paying off that boat and opening some 529 accounts, less stuffing of the long term IRA....
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dbr
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Re: Blended Family Issues and Keeping Things Equal

Post by dbr »

See an estate attorney. I don't know costs but might be $2000 give or take a factor of 2.
delamer
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Re: Blended Family Issues and Keeping Things Equal

Post by delamer »

bg5 wrote: Mon May 27, 2019 10:06 am So what type of an attorney do I need to talk to???? An estate attorney???

Any rough estimate the cost that I should expect?
Yes, you need an estate attorney. Ask friends/family for recommendations.

We live in a HCOL area and spent about $2500 (for 2 people) for wills, living wills, power of attorney, and other documents. Your wife needs all of the above also, and you need a plan for your baby should you and your wife die while s/he is a minor.

The setup with your parents for your older kids is a bad idea, which is no reflection on your parents and their integrity. As someone else noted, you need a testamentary trust for the kids’ inheritance (and the baby’s).

Don’t focus on keeping things equal, but on making sure that everyone has what they need if you die while any of the kids are minors.
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JoeRetire
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Re: Blended Family Issues and Keeping Things Equal

Post by JoeRetire »

bg5 wrote: Mon May 27, 2019 9:49 amIs there anything I can do to protect other assests to make sure that when she dies my kids get their fair share?

Do I need a will or a trust? REally not sure where to start and what I need to do.
You absolutely need at least a will. There is no question about that. Your wife needs a will, too.

With minor children and a blended family, you and your wife should see an estate attorney. This is not a DIY situation. First, make sure you and your wife are both in absolute agreement regarding these matters.

The attorney will help you create your wills, and advise you how to structure your life insurance, retirement accounts, and everything else so that you can achieve your goals. A trust may be in order, or not.

Don't wait.
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earlyout
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Re: Blended Family Issues and Keeping Things Equal

Post by earlyout »

And for the sake of your relationship, make sure you discuss all of this with your wife.
stan1
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Re: Blended Family Issues and Keeping Things Equal

Post by stan1 »

Another thing I'd consider. Instead of using the word "equal" switch to the word "fair". It may be the same result but what's fair may change with time and need. Agree discussing your plan with your current wife should be at the top of the list before you see an attorney.
dbr
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Re: Blended Family Issues and Keeping Things Equal

Post by dbr »

stan1 wrote: Mon May 27, 2019 10:30 am Another thing I'd consider. Instead of using the word "equal" switch to the word "fair". It may be the same result but what's fair may change with time and need. Agree discussing your plan with your current wife should be at the top of the list before you see an attorney.
Agree. I have seen some amazing and unpleasant contortions when someone tries to make everything equal when what is called for is that it be fair.
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ResearchMed
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Re: Blended Family Issues and Keeping Things Equal

Post by ResearchMed »

stan1 wrote: Mon May 27, 2019 10:30 am Another thing I'd consider. Instead of using the word "equal" switch to the word "fair". It may be the same result but what's fair may change with time and need. Agree discussing your plan with your current wife should be at the top of the list before you see an attorney.
This is important, and presumably would be among topics raised by the estate attorney.

For example, IF you pass when the older children are close to self supporting, but the youngest (and by the way, congratulations on the arrival of the little one!) will still be dependent for some years.
You might want to consider that the older children already received more support... or not. But you should *think* about all of these types of things.

Also, what if all of these beneficiaries are not alive when you pass...?

Etc...

RM
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fortfun
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Re: Blended Family Issues and Keeping Things Equal

Post by fortfun »

Besides talking to an attorney, I'd say current wife and child may need 1M on their own to get through the next 18-22 years. You may want to give them a larger share, OR look at getting another 500k just for them.
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8foot7
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Re: Blended Family Issues and Keeping Things Equal

Post by 8foot7 »

When I hear of wills being “fair” and not “equal” I generally think someone is about to be screwed out of some money.
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Re: Blended Family Issues and Keeping Things Equal

Post by veindoc »

An estate attorney. Ours cost us $2k. It’s a big bite but gives you peace of mind. My concern about giving money to your parents for the benefit of your kids is when do you want them to hand over the money to your kids. What if your new wife is struggling over the loss of you and can’t work. Are your parents supposed to give her money for their needs. Or what if one kid goes to college and the other joins a rock band. Do they get the money at the same time? Are there conditions?
123
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Re: Blended Family Issues and Keeping Things Equal

Post by 123 »

You are providing for the presumed caretaker and custodian of your new baby (your current wife who would also be the presumed beneficiary of your pension) but not providing for any caretaker/custodian support to those that care for your first two children (at least until they are on their own).

Are your mom and dad still married (to each other)? Using relatives to act as pseudo-trust custodians can run into lots of issues over a potential 20 - 60 year. Who are the contingent beneficiaries on the life insurance and how would that work if either parent predeceases a child beneficiary?

Upon your passing will any equity in your home be available to distribute to the first two children or do they just lose out on that?
Last edited by 123 on Mon May 27, 2019 11:03 am, edited 2 times in total.
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HomeStretch
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Re: Blended Family Issues and Keeping Things Equal

Post by HomeStretch »

While your children are minors, “fair” may be more equitable than “equal”.

In the event of your death, how much will family 1 and family 2 need for:
- support (to replace alimony/child support you pay to family 1 and to replace household income you contribute for family 2)
- college costs
+ inheritance you wish to provide, if any

The life insurance you allocate to wife and each child would reflect the above determination. As children become adults and needs change, the amount of life insurance or allocation % may change too.

+1 on engaging an estate attorney to draft documents to provide for family 1 children directly via will/Trust rather than leaving to parents for children’s benefit.
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Re: Blended Family Issues and Keeping Things Equal

Post by Sandtrap »

bg5 wrote: Mon May 27, 2019 10:06 am So what type of an attorney do I need to talk to???? An estate attorney???

Any rough estimate the cost that I should expect?
1. Seek legal counsel.
2. Yes. Estate planning attorney.
3. Costs can run from a flat fee for a simple "template drive through window trust" with alternations as needed, to more for a custom trust specific to your needs, and size and complexity of your estate.
4. Highly suggest this, especially for a "blended family".
5. Read, "Beyond the Grave" by Condon. Not for legalities but many examples of family dynamics and what can go wrong.
"Beyond The Grave" by Condon (Amazon.com)
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bsteiner
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Re: Blended Family Issues and Keeping Things Equal

Post by bsteiner »

You'll need a Will and a customized beneficiary designation for your life insurance.

It sounds like you want to leave your life insurance 25% in trust for Dad, then to children of first marriage, 25% in trust for Mom, then to children of first marriage, and 50% in trust for second wife and her issue.

If you and your wife own your home jointly it will go to your wife. You'll have to decide whether to include that in the pot when dividing the life insurance.

You also didn't say how you want your retirement benefits to go (or whether you have a choice to leave it other than to your wife). You'll have to decide whether to include that in the pot when dividing the life insurance.

You'll need executors, trustees of each trust and guardians. Your executors won't have much to do if your wife survives you since your home will go to your wife if you own it jointly and your life insurance and retirement benefits will go to the named beneficiaries.

You should focus on the degree of control each beneficiary should have over his/her trust, and to the extent a beneficiary doesn't control his/her trust, who should control it.

The cost of this will vary depending on where you're located, and the the lawyer and law firm you use. But it's likely to be more than the amounts that others have mentioned.
Sandtrap wrote: Mon May 27, 2019 12:42 pm ... Read "Beyond the Grave" by Condon. ...
That book is popular here, but it's geared to community property states, in particular California. It doesn't deal much with tax issues (though estate taxes are unlikely to be a consideration in your case). It also focuses on the end points (providing for beneficiaries outright or in trusts in which they have no control) whereas most clients opt for a middle ground (providing for beneficiaries in which they have some degree of control or substantial control).
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Re: Blended Family Issues and Keeping Things Equal

Post by bayview »

bsteiner wrote: Mon May 27, 2019 2:42 pm ...You should focus on the degree of control each beneficiary should have over his/her trust, and to the extent a beneficiary doesn't control his/her trust, who should control it...
Bruce, you often mention this “intermediate” level of trust; neither outright nor tied up indefinitely. I assume that this is an irrevocable trust of some sort?

When DH and I meet with an estate attorney (thank you once again for the recommendations that you pm’d), what is this sort of trust called, beyond “we want to have the money protected from creditors and spouses and whatnot but the kid has some amount of control”? I rarely read about this option. What I usually find is rather all or nothing.
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Saving$
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Re: Blended Family Issues and Keeping Things Equal

Post by Saving$ »

You should not leave $ to mom and dad with the understanding they will give it to your kids...
- They could decide not to
- They could have debtors that take the money
- They could have dementia and forget
- They could have medical expenses after they give the kids the money, and the lookback period claws the money back from your kids
- There are more things that can go wrong....

Get an estate attorney.

Also, do you consider the following scenario fair? (If not, rethink your plan):
You and your ex wife provide for your two older kids through high school and college, perhaps paying part of college. You pass away unexpectedly in 12 years, when the two older kids are out, or almost out of college. Each of the older kids gets $300k when they are starting out. Your youngest is 12. Your current wife gets $600k, presumably to support herself and the youngest. She uses it exactly for that - lets say at the rate of $50k for six years while your youngest is at home ($300k used). Then there is still a $300k chunk of change, so the youngest does not qualify for financial aid for college. So your wife uses it to pay college tuition, fees and room and board for the youngest, at what at that point will probably be $75k/year. Your youngest graduates, but gets no cash when they are starting out.

How about if you consider a trust for all of your kids, and specify what the funds are to be used for. You can put your mom or dad as trustee, with someone else as successor trustee. If you want to leave part of your life insurance for your wife, that sounds reasonable.
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Re: Blended Family Issues and Keeping Things Equal

Post by bsteiner »

bayview wrote: Mon May 27, 2019 3:11 pm
bsteiner wrote: Mon May 27, 2019 2:42 pm ...You should focus on the degree of control each beneficiary should have over his/her trust, and to the extent a beneficiary doesn't control his/her trust, who should control it...
Bruce, you often mention this “intermediate” level of trust; neither outright nor tied up indefinitely. I assume that this is an irrevocable trust of some sort?

When DH and I meet with an estate attorney (thank you once again for the recommendations that you pm’d), what is this sort of trust called, beyond “we want to have the money protected from creditors and spouses and whatnot but the kid has some amount of control”? I rarely read about this option. What I usually find is rather all or nothing.
Most of our clients provide that each child gets effective control of his/her trust upon reaching a specified age (or upon the death of the parents if the child has already reached that age). For this purpose, control means the right to become a trustee, the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and the power to appoint (give or leave) the trust assets to anyone he/she wants (except the child or his/her estate or creditors).

It's not a legal term, but the most common term for this is a "beneficiary controlled trust." One lawyer, now retired, used to call it a "transparent trust."

Of course, depending on the situation, some clients want a child to have a lesser degree of control, or no control at all.
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Re: Blended Family Issues and Keeping Things Equal

Post by DarthSage »

Another vote for "see an estate attorney". We chose ours by looking on-line for ones attorneys that were in their professional group (name currently escapes me).

We don't have your specific issues, but had a couple weird things of our own. Four kids (same parents) over 11 years--two are now legal adults. Oldest wants to become guardian for younger two if both parents die. Kid #2 has special needs.

Our attorney did a fabulous job asking us the tough questions, and a bunch of not-so-tough ones that we never would have considered. We paid $3500 for all our stuff (wills, POA, Advanced Medical Directive, etc.). We paid an extra $1500 for a revokable trust and associated documents for Kid #2, who currently is not in a position to manage his own finances unaided (but may be, one day).

BTW, we're going with "fair", rather than "equal". For example, if we both die, the oldest gets extra, because she would have to run the household immediately. We have talked to each of our children about why we chose the way we did. But--our kids are older than yours (youngest is 13).
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Re: Blended Family Issues and Keeping Things Equal

Post by bayview »

bsteiner wrote: Mon May 27, 2019 4:39 pm
bayview wrote: Mon May 27, 2019 3:11 pm
bsteiner wrote: Mon May 27, 2019 2:42 pm ...You should focus on the degree of control each beneficiary should have over his/her trust, and to the extent a beneficiary doesn't control his/her trust, who should control it...
Bruce, you often mention this “intermediate” level of trust; neither outright nor tied up indefinitely. I assume that this is an irrevocable trust of some sort?

When DH and I meet with an estate attorney (thank you once again for the recommendations that you pm’d), what is this sort of trust called, beyond “we want to have the money protected from creditors and spouses and whatnot but the kid has some amount of control”? I rarely read about this option. What I usually find is rather all or nothing.
Most of our clients provide that each child gets effective control of his/her trust upon reaching a specified age (or upon the death of the parents if the child has already reached that age). For this purpose, control means the right to become a trustee, the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and the power to appoint (give or leave) the trust assets to anyone he/she wants (except the child or his/her estate or creditors).

It's not a legal term, but the most common term for this is a "beneficiary controlled trust." One lawyer, now retired, used to call it a "transparent trust."

Of course, depending on the situation, some clients want a child to have a lesser degree of control, or no control at all.
Thanks! So even though the beneficiary has some control (including potentially the right to withdraw a significant sum of money?), he/she can’t be forced to do so by a divorce decree, lawsuit, etc.?
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Watty
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Re: Blended Family Issues and Keeping Things Equal

Post by Watty »

bg5 wrote: Mon May 27, 2019 9:49 am I have a 1.2 million dollar life insurance policy on myself and my only concern is making sure my two original kids would get their fair share of stuff if I die.
As others have said you really need to have a lawyer set this up for you.

One huge problem with this is that you could get a 30 year term life insurance policy but then die in 31 years after the policy has ended. There would be no life insurance but you would still have things like retirement accounts and home equity and dividing those up would be problematic.
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Re: Blended Family Issues and Keeping Things Equal

Post by spammagnet »

bg5 wrote: Mon May 27, 2019 9:49 am... I have a 1.2 million dollar life insurance policy on myself and my only concern is making sure my two original kids would get their fair share of stuff if I die.

So currently here is how I have things set up in case I die with life insurance

300k to my mom (she will give to child 1 from original marriage
300k to my dad (he will give to child 2 from original marriage
...
So, what happens if either or both parents are found financially liable for a very expensive accident and have to pay out the $600,000?
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Re: Blended Family Issues and Keeping Things Equal

Post by bsteiner »

bayview wrote: Mon May 27, 2019 7:26 pm ...
Thanks! So even though the beneficiary has some control (including potentially the right to withdraw a significant sum of money?), he/she can’t be forced to do so by a divorce decree, lawsuit, etc.?
If the beneficiary has the right to withdraw from the trust, the creditor protection may be lost as to the amount he/she can withdraw.

The way to give the beneficiary effective control is to give him/her the right to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee).
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Re: Blended Family Issues and Keeping Things Equal

Post by bayview »

And so it’s the co-trustee who makes any withdrawals. Thanks!
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TxAg
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Re: Blended Family Issues and Keeping Things Equal

Post by TxAg »

In a LCOL area you could have an attorney draw it up for less than $1k. Money well spent.
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celia
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Re: Blended Family Issues and Keeping Things Equal

Post by celia »

Why do you want to leave the share for the first two kids to your parents? Their grandkids (your oldest kids) likely won't end up with anything. Just leave it to the kids directly and, if they are minors when you die, someone will take care of the money for them, like their mother. If you share joint custody now, after you die, she will be getting full custody anyways and will need the money to finish raising them to adulthood.

In addition, if you brought assets into this marriage, that may also be a consideration. For example, if half of your net worth is from assets you previously owned, it seems that should go to your first two kids.
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Re: Blended Family Issues and Keeping Things Equal

Post by mchampse »

Life insurance isn’t meant to be a windfall for your loved ones, but rather a means of replacing what you would have provided them less what would have been spent on you. You don’t need to replace your entire salary for the rest of your working life. I also wouldn’t divide things up based on fairness, but rather need.

Do you pay child support and/or provide for your kids from the first marriage? If so, you may want to leave some money to your ex-wife to help take care of those kids and ensure that they continue to live at the level they currently enjoy, though it depends on your relationship with your ex-wife. Beyond child support, I would say the only other major expense that your kids from the first marriage have would be college which you should provide for.

For your current family, I would consider getting a joint first to die policy, especially considering that you and your wife earn similar salaries. In terms of coverage, I would first leave an amount that will pay off all of your debts including the mortgage ($270k). Then leave money towards that child’s college as well as additional child care the other might incur. After that, consider how much income support your wife/you would need if the other died. Given your savings level, it sounds like you live well below your means and quite possibly paying off the debts might be enough. With a teachers pension, you both should be fairly comfortable in retirement regardless.

My sense is that your personal policy is well above what you would need. Depending on your relationship with your ex-wife and her ability to manage money you may want to consider leaving the money to her. If you aren’t comfortable doing that, perhaps look into putting money into 529 plans.

With regards to your retirement funds, I would leave all of it to your wife as she would have the most flexibility in keeping the money tax deferred. If you are completely wedded to the idea of keeping things fair, consider giving non-retirement assets to your older kids.
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Re: Blended Family Issues and Keeping Things Equal

Post by msk »

Personally I would simply divide everything up into equal parts: one for current wife and one for each of your children (currently 3). The baby does have a working mother able to raise her to maturity so probably can survive well without extra apportioning. The older two kids need a trustee(s) to be appointed (ex-wife or your own parent?).
I would then also urge the current wife to divide up her wealth into equal parts, one for you and one for each of her own children (currently only the one baby but one never knows..).
Two simple wills that could be valid and appropriate for many, many years. More complicated stuff tends to get outdated by circumstances very quickly.
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Re: Blended Family Issues and Keeping Things Equal

Post by JoeRetire »

celia wrote: Tue May 28, 2019 1:12 amJust leave it to the kids directly and, if they are minors when you die, someone will take care of the money for them, like their mother.
In some divorce situations, that would mean the ex-wife would spend the money as she sees fit, and maybe not for the sole benefit of these two children (on herself, her boyfriend, her new husband, her new husband's children, etc, etc.). That may not be the OP's desire.

That concern may not apply here. If it does, a different financial vehicle may be appropriate.

A good estate lawyer would help sort things out.
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Re: Blended Family Issues and Keeping Things Equal

Post by mancich »

earlyout wrote: Mon May 27, 2019 10:20 am And for the sake of your relationship, make sure you discuss all of this with your wife.
+1. This. Talk it out with your wife, make sure you are on the same page, then go see a reputable estate attorney. This is not the area to try to cut corners or save a few bucks. Do it right and then sleep well knowing you've properly provided for your family. Good luck!
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Re: Blended Family Issues and Keeping Things Equal

Post by stan1 »

Here's another approach that could be more "fair" and might even be more "equal" depending upon how you look at it. In OP's original plan all the kids were not treated equally.

50% to current wife
Of the remaining 50% each of n children gets 1/n [3 existing children plus allows for a future child with spouse even if another pregnancy is unplanned].

This way all children get a trust for college education and spouse has means to support herself and child until adulthood.
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Re: Blended Family Issues and Keeping Things Equal

Post by djpeteski »

bg5 wrote: Mon May 27, 2019 10:06 am Any rough estimate the cost that I should expect?
It is typically a bad deal, but does your employer have legal insurance? Typically you pay about 200-300 for the year, spread out over the year. In the year I needed a will I signed up for the legal insurance and had a will drawn up. I feel we got a lot of value, not only the will but also some advice on other matters.

Then the next year we dropped the insurance.

This might not work if you already have an attorney, but if you don't this might be a good way to go.
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djpeteski
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Re: Blended Family Issues and Keeping Things Equal

Post by djpeteski »

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bg5
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Re: Blended Family Issues and Keeping Things Equal

Post by bg5 »

Thanks for all the advice given as I really appreciate it. I have reached out to 3 different estate attorneys in my area for a consultation to get this process started. Talking to friends in my area who have done this recently is sounds like my cost will be around $2000-$2500 which is what I was expecting. I will update the forum with what happens with this process.

Thanks again to the Boglehead community :) I just wish I new about this site along time ago :)
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