Blended families and their particular estate planning needs

Blended families are often described as those where two individuals, each with their own children, re-marry or form a new partnership. They may go on to have more children together. Blended families have become a more common feature of society and accordingly an increasingly important issue for many more people than in the past.

With a blended family, there are added dimensions to the family to consider in respect of estate planning. There may also be an increase in the potential for a Will contest because of competing claims from children of past relationships and a latest partner.

Managing competing interests in blended family estate planning is subject to some key risks. These include a failure to understand that certain assets fall outside the parameters of a Will and must be dealt with in other ways; and that the Will of the surviving party made during the relationship can later be revoked. This may be because of a subsequent marriage or the surviving party making a new Will which benefits their own children and excludes their stepchildren.

Supporting a surviving partner while ensuring your own children can inherit

There have been some high-profile cases in recent years which have illustrated the many challenges facing estate planning for blended families. By way of illustration of the type of situation that can arise, consider where a widow who has children then re-marries. She feels certain that her new husband would do the right thing by her children if it came to it. The couple decides to keep things simple in terms of their Wills and plan to leave their estates to one another. She believes that if she were to die first her new husband would leave an appropriate share of the residual estate to her children from her original marriage. However, after her death, the husband remarries himself, and over time he loses contact with these children. His new wife persuades him to leave his estate, including what he has inherited from his former wife to her. Consequently, the children of his former wife may end up not receiving any inheritance from their natural mother’s estate.

This type of situation is all too common. Fortunately, there are some planning strategies that can help. For example, it is possible to set up certain trusts to help protect assets and ensure they pass on in the way that was intended.

Estate planning strategies for blended families

It is usually the case that the couple involved, whether married or in a de facto relationship, aim to provide for each other but also for all their children once both parties have passed away. As has been seen, this is not without potential hazard. Fortunately, there are a range of strategies to give a Will-maker’s testamentary wishes the best chance of being achieved. These include:

Simple Wills v Mutual Wills

A simple Will typically involves the couple leaving everything to each other in the first instance and then to all their children in equal shares once both parties have died. It may be that the simple solution that can achieve the parties’ objectives. However, as has been seen, the surviving partner may re-marry or change their Will in a way that means that their former deceased partners’ children miss out on their inheritance.

A simple Will is a stand-alone document setting out a person’s wishes for their estate and is unaffected by anyone else’s Will. A Mutual Will is, by contrast, an agreement between partners. Each agrees to be bound by obligations in the event that they survive their partner.

Using Mutual Wills, a couple agree not to revoke their Will without the consent of the other party. On the death of one party the surviving party is not able to substantially change their Will.

This option provides some protection and comfort for a party that their children will not miss out by the surviving party changing their Will to benefit only their own natural children. Should the surviving partner change their Will there is a legal way for the children to challenge any unacceptable changes.

Testamentary Trust Wills

A testamentary trust is a trust created by a Will which comes into effect upon a person’s death and can provide benefits to the various beneficiaries. In practice, the estate’s assets are held on trust with the Trustee having discretion over the distribution of the income and capital of the estate.

A testamentary trust can provide some tax benefits and be a useful way of providing for a current partner as well as any children from a previous marriage.

A Life Interest in the family home

The strategic device of a life interest can be used in respect of the family home as this is often a person’s main asset. Most couples who own property do so as ‘joint tenants’. In this event, property passes to the surviving joint owner and not under the joint owner’s Will.

However, this ownership model can be changed to ‘tenants in common’, which allows each party to leave their share in their Will to whomever they wish, which will often be their natural children while allowing for the surviving party to remain in the property for a specified period. This could be for life until the surviving partner re-marries, or they simply no longer wish to remain living there.

Life insurance policies

A life insurance plan can produce a cash lump sum which can be paid to children while other assets can simply pass to the surviving spouse. This strategy may depend on the affordability of the premiums to produce a realistic sum based as they are on the age and health of the applicant.

Contact our Estate Planning Lawyers in Sydney, NSW

With blended families, there can be a range of complicated decisions to make when it comes to thinking about what you want to happen to your estate. Taking the time to consider your wishes and different scenarios can help prevent difficulties for your family in the future. Szabo & Associates Solicitors can help you find your way through these complications. Please contact us on 02 9281 5088 or fill in the online contact form.