Making a Will is important, particularly if you are part of a blended family. A blended family is a family in which one or both partners have a child or children from a previous relationship. Careful estate planning now should ensure that all of your intended beneficiaries are provided for when you die and that the potential for conflict within the family unit is minimised.
There is no one-fit solution when it comes to estate planning for the blended family. The dynamics and needs within families evolve and personal assets may fluctuate from year to year. However, by identifying the potential issues that might arise within each family unit, and considering some options to address these, an effective estate plan can be accomplished.
The important thing is to discuss your circumstances and objectives with your legal advisor so that your wishes can be properly set out in your Will and other estate planning documents. These documents should be reviewed regularly to take account of changing circumstances.
Competing interests – the common issue
The most typical issues faced by a Will-maker within a blended family are the competing interests of past and present partners, biological children and step-children. The Will-maker is likely to want to look after the current partner and also their own children from their previous relationship. There may also be children of the present relationship and children from the partner's prior relationship to consider.
Traditionally, a Will for a married couple provides for the estate to go to the surviving partner in the first instance and then upon their death, to the children. This is likely to be inappropriate for blended families – not only must the children of the deceased wait until the step-parent dies before inheriting, but there is a risk that the surviving partner may change their Will so that the deceased's own children miss out. A further risk is that the assets may over time diminish, leaving little for the deceased's children.
In some instances, if adequate provision is not made from a deceased estate, an eligible beneficiary may be able to make a family provision claim causing distress, delay and uncertainty during an already stressful time.
The following may provide some helpful suggestions when considering these complex issues.
Immediate gifts and interests in real estate
When making your Will, you may choose to provide an immediate gift to your children upon your death rather than your children waiting to inherit after the death of your partner. A life insurance policy nominating the children as beneficiaries might be appropriate in this instance.
If the estate is significant, the Will could provide for an immediate gift of real estate, money or other valuable asset to the children. This will safeguard against the possibility of your children missing out on an inheritance should your partner later change their Will or your estate assets diminish.
If you and your partner hold real estate as joint tenants, you might consider changing this to a tenancy in common. A joint tenancy means that the share of property held by a deceased tenant automatically goes to the surviving tenant. This cannot be altered by Will. However, if the property is held as tenants in common, your share may be left to your children subject to leaving your partner a life interest in that share of the property if desired.
A life interest will provide your partner a continued right to reside in and use the property until he/she dies at which stage your share will revert to your children. Note however, that life interests can be complex due to circumstances such as health and aging of the surviving partner who may need to downsize or move to an aged care facility. These issues should be carefully considered and discussed with your legal advisor.
A testamentary trust is a trust contained in a Will that comes into effect upon the testator's death. A testamentary trust provides flexibility and control in asset distribution amongst beneficiaries and assists in protecting your assets from third parties and creditors. Assets can be preserved so that they can pass through future generations and the trust can provide for different scenarios.
Testamentary trusts are generally tax effective and may be worthwhile considering in your estate planning if the value of your likely assets warrants the establishment and administrative costs.
Choosing your executor
Your executor is your personal legal representative when you die. He or she has the role of ensuring that the wishes set out in your Will are followed. Your executor will deal with your estate lawyers, accountants, financial advisors and real estate agents. He or she will maintain estate accounts, pay bills and generally oversee the administration of your estate.
Generally, a person's spouse or child will be nominated for this role. However, because of the dynamics involved in blended families it may be preferable to appoint one or more neutral friends or professionals so that the role may be carried out with impartiality.
These are some important points worth remember when considering estate planning for the blended family:
- Talk to your partner about your estate planning objectives.
- List all assets including those held separately and jointly.
- Consider everybody from the family including spouses, previous spouses, biological and step-children, and identify those whom you wish to benefit – preparing a family tree may be helpful.
- Contemplate if your choice of beneficiaries might leave open the potential for a family provision claim. You may need to discuss this with your legal advisor.
- Consider choosing impartial executors.
- Discuss your objectives with your lawyer so the relevant documents can be prepared.
- Ensure that you have binding death benefit nominations in place for your superannuation and life insurance policies.
- Review your Will and plans regularly, and immediately if your personal, health or financial circumstances significantly change.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.