It’s really simple. Do nothing. That’s right. Do nothing and you will almost certainly ensure that none of your stepchildren will receive any benefit from your life insurance policies, your IRAs, your 401(k)s – nothing.
But, you say, I love my stepchildren. I would never want to disinherit them. How could that possibly happen?
It’s actually quite easy. Unless you legally adopt your stepchild, he or she normally has no legal right to any of your property. Most inheritance laws follow bloodlines, i.e., natural-born/biological children inherit. In the absence of specific guidelines, this is usually what will happen. If you want your stepchild to inherit, you have to make it so. Here’s how.
It is just as simple to ensure your stepchildren are in line for any inheritance as it is to lock them out. First, you could legally adopt them. Once adopted, that person shares the same legal status as a biological child. However, maybe you do not want to adopt, or cannot adopt your stepchild. What do you do then?
Specifically, name your stepchildren as beneficiaries. That’s it. All you have to do is name names and identify the sharing arrangement. For example, on your life insurance policy, list Susie Stepchild as a beneficiary. Do the same thing with your retirement plans and be sure to include Susie in your will. Now, you don’t have to worry about inadvertently disinheriting Susie or her children (your step grandchildren).
Many parents use a common beneficiary designation, along the lines of: children share equally. That’s not much of a problem if there are no stepchildren. Add a stepchild and the situation changes . . . assuming you want to include that child as a beneficiary. Legally, that unadopted stepchild isn’t counted among your children. This is why you must specifically name any stepchildren whom you want to receive an inheritance.
For life insurance policies and annuities, call your agent or insurance company. Ask for a beneficiary change form. It may be available online, but you might have to print it, sign it, and mail it in. No beneficiary changes become active until officially received by the company (in whatever form the insurer requires). You might, for example, name your spouse as primary beneficiary, and then list each child – natural born, adopted and step – as contingent beneficiaries. You can have them share the proceeds equally or specifically identify a different sharing percentage for each one. Why would you want to change the sharing percentage? Maybe one of your children has special needs that might require extra care . . . and extra money to fund that care. There may be other reasons, too. The point is, you can specify the sharing percentages.
Do the same thing with your IRA, 401(k) and other retirement plans. Get the appropriate beneficiary form from your provider or your employer. This would be a good time to ensure you actually have named a beneficiary for these plans. You should. While you’re at it, include your children – step and biological – as named contingent beneficiaries (you will normally identify your spouse as the primary beneficiary).
For any assets where you cannot name a beneficiary, you will need to amend your will. Include your stepchildren by name, and identify their share of the inheritance. If you want to include step grandchildren, specifically identify them as well.
Sometimes a revocable living (inter vivos/family) trust is a good idea. Using such a trust allows you to have quite a bit of control over the disposition of your assets. It also may help shepherd those assets through the probate process, reduce any estate taxes and preserve family privacy. We won’t go into detail on this, but if you choose to use one, make sure to include your stepchildren in the same way as has already been identified. (To determine whether a revocable living trust makes sense for you, talk to your financial advisor and/or your estate planning attorney. Trusts and wills must be drafted by an attorney.)
So there you have it. If you have stepchildren – and with the frequency of divorces and second marriages, many people do – and you do not want to disinherit them, follow the guidelines we have discussed. It’s not hard to fix, but lots of people are not even aware of the potential problem. Now you know, and you can inform your children – all of them – that they will be taken care of in the event you are not there to do so personally.