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Question about Wills, Life Insurance-- how did you handle it?

Pregnantwithquestions's picture

Maybe this would be better answer under the legal section, but questions about how to handle insurance policies, wills, etc in a blended family?

Right now—I am pregnant with our first child, DH has a child from a previous marriage.

For his child—he has a life insurance policy set up in his ex wifes name to cover the expenses / cost of raising should he pass away before they turn 18

For us, he has a separate insurance policy listing me as the beneficiary. I also have a separate policy I brought into the marriage that I changed over to him as the primary beneficiary with my parents being secondary, should something happen

My questions are pertaining to wills and how all of that is split up.

Hypothetical #1: If he passes first, how should we split up the assets and the estate? Would I need to pay out my stepchild first and then what is remaining pass on to our children? Or wait until I pass and then split it all up evenly amongst all the kids? We plan on having 2, so there would be 3 total.

Hypothetical #2: If we both passed in a freak accident, who would be best to have listed as a power of attorney in these situations? Right now I think my MIL is the one listed, but obviously MY family is going to be heavily invested on what happens to my kids, and would want some say. So, should we split it out to where my MIL has POA over the life insurance policy in place for my stepkid and my mom have POA over the policies in place over mine?

I want to make it as even as possible, which is tough to do when there’s two family units basically being accounted for under the umbrella of one marriage—and I’m not looking to shaft my stepchild at all, but I DO want to make sure *my* kids are well taken care of and represented fairly.


STaround's picture

Hypothetical one.  I would recomend he have the first insurance policy to be in trust for benefit of kid, not to ex. Also, are you in the US, wont the kids get social security?  Is he not employed?  Although if SS is for 3 kids, there is a limit on total benefits.  The insurance woudl be paid direclty to beneficiary, you would  not be involved.  Will there be a substantial estate (in addition to the insurance)?   Is there substantial equity in home, or is there a mortgage?   Qualified plans get paid directly to beneficiary named, who is that (if applicable). 

Hypothetical two -  I would give power to a relative of the dads for his child, for the our child, a mutually agreed upon person.  Remember those are "ours" children.  

Pregnantwithquestions's picture

I should have stated that in the first post, I didn't think of it until after I posted-- but the one for his child is set up as a trust, but it goes to his ex as executor of it until his kid turns 18-- then it all to just the kid.

DH is employed, and our estate isn't anything crazy, but we do own a home and have some assets in terms of savings, retirement accounts, a time share and then of course things like all the household items (furniture, some collectibles that have a little value, my jewelry, guns, vehicles that they could make a little cash on if they sold, etc).

We are in the US-- for his first policy, the beneficiary is the ex. For the other policies the beneficiaries are me and him (he on mine and me on his).

I've seen people do things differently in terms of "paying out" should the parent with the children in multiple homes go first-- which is where I am kind of scratching my head to figure out whats best and put it all in writing

STaround's picture

Hi -- you say the ex is the beneficiary on the first policy, but then say there is a trust.  The trust should be the beneficiary.   Retirment accounts, if part of a qualified plan, need to have beneficiaries designated.  I don't think the household items or the time share have any significant monetary value.   DH may want to see that all of his kids get appropriate things of sentimental value.    If the house is of large value, he may want to provide that when sold, you get say 70%, each DC 10%.  Just a thought. 

Wrong Way Diva's picture

A power of attorney ceases to exist upon death, so I'm not sure what you mean by giving someone 'power of attorney' over the life insurance.   If you mean you want someone to oversee the use of the funds for a minor, you should look into a trust.   Life insurance is not subject to probate--it passes directly to the named beneficiary.   

My parents created a trust--when my Dad passed, everything went to SM.   When she passes, it will be distributed among 5 children equally--she had 2, he had 3.  

Pregnantwithquestions's picture

Gotcha! I always thought POA also extended to your will, not just a living will and could be used as an estate executor. I'll have to look into that some more and read up

Survivingstephell's picture

Be sure that any money that goes to SS is unable to be squandered by BM and he gets nothing when he needs it.  

Any assets that you and DH build together need both your imput as to what happens to them.  Anything that you each brought to the table can be decided independently.  

What happnens when the SS doesn't need to be covered by insurance, when he reaches 18 and ages out of the CO?  You will  need to revisit the will and change it to reflect new needs and desires.  

Do a search on WILL in the search bar.  Plenty on here about that topic and good things to consider unique to a blended family situation.  

Merry's picture

Best advice ... talk to an estate attorney about your options. Your will should look into the future for about five years, and then review and revise (if necessary) every five years or so. It's not a one-time thing.

Pregnantwithquestions's picture

We are! I just wanted to kind of wrap my head around what to expect beforehand and jot down some notes or things I want to make sure to include

Pregnantwithquestions's picture

its going well! Aside from being huge and hot all the time, with the occasional late pregnancy discomfort

Survivingstephell's picture

Your baby will need more money than SS due to age.  Plan enough for child care until age 12ish.  In reality you will have a  difference there , you can't be "fair".  

grace8205's picture

The insurance policy that is in trust for skid is good, however I would not have his ex as the Trustee. Maybe your DH's mother would be a better choice or one of his other family members. 

Me and my DH decieded to leave all of our marital assests to each other.

Anything pre-marital is up to us how to divide. When we first had the discussion DH assumed that all my premartial would go to him, he only had premarital debt and planned to leave 100% of his work life insurance policy to skid. I said ok thats fine, I will leave all my premarial assets to my son, which included 87% of the house that we lived in. His tune changed at that point. 

Now his RSP accounts go to me and mine to him (we live in Canada), and 50% of his life insurane goes to me. I have changed too since he was enlighten. I gave him 25% of my premarital assests and 75% goes to my child. Anything that we build together goes to each other. 

If we build a lot of assets together the last man standing will decide where it goes. I do not particulary like my step son however I would leave him some if I was a widow, its only right. My DH is a good man and I think he would do the same. 

It is a touchy subject. Great to hear you are dealing with it head on. 

Rags's picture

In my legal layman’s understanding most states have right of survivorship laws that vector assets to the surviving spouse.  A Will will ensure that assets go where the deceased wanted them to go.

Insurance falls outside of Wills and probate and pays directly to the stated beneficiary of the policy.  There is no POA over life insurance unless the policy names a Trust as the beneficiary and the trust is addressed in the Will with named executor(s) and recipient.

For  scenario 1 you should receive all marital assets and the entirety  of DH’s estate.  A Will helps prevent others attempting to gain those assets.

For  scenario 2 a Will can split assets between separate trusts for his children and your joint children that can have different/separate executors.

IMH and layman’s opinion of course.

The short answer is.... get an estate lawyer and work it out with an expert.