In Brief with Kevin Kimbrough

Wealth Transfer Planning for Blended Families

Equal distribution may not necessarily be the main goal
A conversation with Kevin Kimbrough, Principal, National Sales, Saybrus Partners, Inc.

by P.E. Kelley

Mr. Kelley is managing editor of Advisor Magazine. Connect with him by e-mail:

As part of our ongoing series on the Evolution of Income Planning, we look at trends that move outside the lines of traditional financial solutions. Here, we spoke with Kevin Kimbrough about the blended family, a planning challenge that advisors encounter more than ever before. While many traditional planning strategies are still appropriate, such as the use of life insurance in a buy-sell agreement, advisors must now learn how they can bring viable, and equitable, solutions to these new and emerging scenarios.

Advisor Mag: How should advisors engage with clients or begin a conversation about wealth transfer and blended families?
KK: Planning for wealth transfer in a blended family is going to be complex, so you will want to involve a qualified estate planning attorney who can help determine which type of estate planning vehicles to use and provide trust planning for younger children.

For your part, this is a conversation that begins like most other financial planning discovery sessions. You need to get a clear sense of your clients’ goals for their estate plan and the legacy they want to leave – in short, what they want to have happen. However, it can be a delicate situation with a variety of emotions and a history of conflict in play.

Understand that in blended families, equal distribution may not necessarily be the goal. There may be a variety of needs to address and complex dynamics with offspring from different marriages, wide gaps in age or even a combination of dependent children and children who are married with families of their own.

If you are working with existing clients, you may already know many of the basic facts, but it’s still helpful to review them up front and delve a bit deeper to get your clients’ current perspective. It’s important to gain a full understanding of the various family members and their relationships.

Since life insurance often plays a key role, you also want to gather information about any existing policies so your starting point can be the protection they have in place, why they purchased it at the time, and who are the current beneficiaries.

AdvMag: How can advisors have conversations with multiple parties of a blended family to ensure wealth is transferred effectively?
KK: It’s best to let your clients direct you on whether and how they want to communicate their estate plan to their children and other heirs. If they do want to bring in the children, it is often a good idea to wait until after plan is in place. Work with your clients, map out the plan with their attorney, and then bring the children in to tell them how it is going to work. To prepare for these conversations, ask your clients how they think various parties will react and strategize together about how to address concerns that are likely to come up.

While it isn’t right for every family, letting the heirs know what to expect can be a good thing. In a 2014 survey by UBS of its investors, 72% of heirs said they would do something differently than their parents with respect to their own estate plans, including 34% who said they would proactively discuss their plans with their heirs.

It also can be good for advisors to start fostering relationships with the next generation, which may decrease the likelihood of losing management of the assets once they are transferred.

AdvMag: If people have two sets of children in different age brackets, how can advisors ensure both sets feel equal when considering wealth transfer and estate planning. How should advisors address beneficiaries of dramatically different ages?
KK: With blended families, there are typically two primary goals: providing support for a current spouse and younger children while treating older children from a prior marriage fairly. Again, I want stress the importance of involving an estate planning attorney to set up trusts or address any complicated issues.

Life insurance can also play a role in funding buy-sell agreements that would buy out family members who are not going to be involved in the business

If the goal is equalization among beneficiaries, there are a number of approaches depending on whether the wealth is all cash or a combination of cash, property and/or a business.

Life insurance can be very useful because it can provide a cash equivalent to property or a business. For example, older children may already be involved with the family business or could immediately benefit from inheriting property, while younger children more often need cash to complete their education or simply as direct support until they become self-sufficient adults.

While you always need to look at each client’s situation on a case-by-case basis, single life policies can be a better way to handle transfer of assets when the family relationships are complex.

AdvMag: If clients have one or more children actively involved in a family business, how can they plan for the smooth continuation of the business, and at the same time treat all of the children fairly?
KK: If the goal is to equalize, then life insurance can be used in this situation to provide comparable value to the children who are not inheriting a piece of the family business. This is true for blended families as well as simpler ones.

Life insurance can also play a role in funding buy-sell agreements that would buy out family members who are not going to be involved in the business. Take, for example, a business owned and operated by a father and the elder of his two sons. Upon the father’s death, a buy-sell agreement would direct the sale of interests inherited by the second son to the first son.

A life insurance policy on the father would pay out and serve as the funding vehicle for this transaction. You absolutely need an attorney to set up these agreements and then look at the appropriate strategies to finance them.

If your client is actively involved in the family business, you should also consider key person insurance that protects the business with additional funds for a replacement search or to fill the gap of lost revenue that may occur initially.