Financial and Retirement Planning Blog

Adding Stepchildren to Your Estate Plan

As we look ahead to a new year, we think of our goals and priorities. Some of these goals can involve getting an Estate Plan together. If you want to leave part of your estate to your stepchildren, you are required to specify that in your will. If a stepparent dies without a will, the children will not get any part of the estate even if the deceased stepparent wanted them to. Stepchildren do not have automatic inheritance rights possessed by adopted and biological children.

Legally speaking, stepchildren are not entitled to any inheritance unless they are specifically named on the will. This fact can be traced back to the colonial days when America was under the British common law. Due to the prevalence of negative stepparent stereotypes at the time, the centuries old legal system did not encourage strong legal relationships between stepchildren and stepparents.

Blended Families and Estate Planning 

What are blended families? The term blended families refers to a family situation where either the husband or the wife has kids from a previous marriage. Blended families can take any of the following forms.:

• Families where both spouses have children from a previous marriage.
• A family where both husband and wife have children from previous marriages in addition to their own biological kids as a couple.
• Married couples where either the husband or the wife has kids from a previous marriage.

Blended families often have to deal with complex issues when it comes to estate planning. Problems can arise between the parents or the children and their spouses. Some of the challenges individuals from these families face include:

• Scuffles over the division of responsibilities or authority.
• The need to protect their estate from previous spouses.
• Potential delaying of the stepchildren’s asset perhaps until the death of the parent’s spouse.
• The possibility of stepchildren being disinherited by the living spouse.

Estate Planning Asset Protection Strategies to Protect Stepchildren

The number of blended families continues to rise as divorce rates in first marriages and remarriages rise. On average, about 50 percent marriages and 60 percent remarriages always end up in divorce in the US. With the help of an estate planning attorney, these families can come up with some form of asset protection to make sure that the surviving offspring remains a part of their estate.

Stepparent Will

The stepparent should make sure they have a will which specifically names the stepchild/children as a beneficiary. If a stepparent dies without a will, his/her estate will be inherited by the legal spouse or the closest living relative but not the stepchild.

Irrevocable Life Insurance Trust (ILIT)

ILITs allow stepparents to provide for their children through life insurance and use the remainder to provide for their spouse. The parent purchases a life insurance policy using the name of the child and pays the premium for the rest of his/her life. The child will receive the inheritance upon the death of the parent. Irrevocable life insurance trust is a good way to ensure that stepchildren are not disinherited.

Bloodline Trusts

A bloodline trust is intended to benefit your child and his/her offspring. The trust protects a child from creditors and former spouses by keeping the money in the family. The child is the trustee.