3 Financial Challenges of Blended Families

Taxes and estate planning grow more complex when remarriage or step-kids enter the picture.

 Portrait of little girl holding a piggy bank with her family
By + More

3. Estate planning. Remarriages in particular can complicate estate planning. "One of the most common techniques in estate planning is a marital trust or QTIP trust that is set up to benefit a surviving spouse for their lifetime," Wistar says. "The remainder goes to the children."

But if the new spouse is much younger, adult children may worry that their inheritance will go to support a step-parent instead of flowing to them. (Just look to Cinderella for a cautionary tale of not providing for one's biological children after death.) "If there's a 25-year difference between the new spouse and their parent, and all those assets go into some type of trust to support the step-parent, there can be real resentment," says Joe Heider, regional managing principal at Rehmann Financial in Westlake, Ohio. "Their inheritance has been delayed by a generation."

[See: How to Improve Your Finances at Every Age.]

If the biological parent is still insurable, Heider continues, he or she could potentially avoid this situation by purchasing additional life insurance and putting it in an irrevocable trust for the biological children. "The [surviving] spouse inherits the home and assets, and they've provided for the children in the form of life insurance," he says.

Updating beneficiaries on life insurance or retirement accounts is an important part of estate planning because beneficiary designations trump wills or trusts. If the policyholder forgets to remove an ex-spouse from a life insurance policy following a divorce, the ex could get life insurance money instead of the deceased's children or new spouse.