We regularly deal with clients whose life stories include divorce, separation and children from previous relationships.
Estate planning for blended families can often pose significant estate planning risks and challenges. However, with the right advice, these risks can be avoided.
The following are some common questions blended families should be asking to combat these challenges:
1. Is my estate exposed to risks of a claim?
Nowadays, having an estate plan is more than just preparing a Will. Rather, the process of estate planning means the consideration of various factors including your family tree, step children, previous spouses, current assets and liabilities, etc.
All these factors need to be balanced against one another to design your estate plan.
If one of these factors are not properly considered, it may give rise to a risk of a claim against your estate.
For example, if a husband has step-children from a previous deceased spouse, those children are eligible claimants on the husband’s estate if they are not adequately provided for.
2. Are all my assets controlled by my Will? Should I re-structure?
Having a proper understanding of what assets will be controlled by your Will and what assets will not, is crucial.
It is only once you have a clear understanding of this that you will be able to design a comprehensive estate plan and discuss strategies for limiting the assets that may be implicated if a claim is made against your Will.
Common examples of significant assets which fall outside of a person’s estate include:
- Joint property
These assets automatically pass to the surviving joint owner upon the death of a joint owner and not as per the terms of the Will.
If you intend to pass your share of a property to your children and not your spouse, steps could be taken to change the joint ownership to a tenancy in common.
- Assets held in a discretionary or family trust
These are dealt with in accordance with the terms of the trust deed.
- Superannuation and life insurance proceeds
These assets often fall outside of a person’s estate and are paid to a nominated beneficiary (or beneficiaries) directly. If there is no Binding Death Benefit Nomination in place, the trustee of the super fund may exercise its discretion as to who the death benefit is paid to.
3. What if I want my children to benefit but my spouse to reside in our family home after my death?
The creation of a life fund in your Will is an option blended families may consider when preparing their estate plan. A life fund provides a benefit for life as opposed to an outright gift.
This strategy is commonly used in respect of the family home.
With this strategy, you are able to leave your share of the property to your children, while allowing your surviving partner to remain living in the property for a specified period.
This could be the earlier of your spouse’s death, re-marrying, no longer wishing to live there or sale of the property. The terms of the life fund can be specifically tailored to suit the circumstances.
4. Who is my best choice as executor?
The role of executor is an important position and carries a lot of responsibility – especially in the context of a blended family.
Generally speaking, the risk of a claim is more prevalent in blended families and therefore, balancing the interests of those who are eligible to claim against your estate is important.
Your choice of executor can make all the difference in difficult situations when dealing with your estate upon your passing and making distributions to your beneficiaries.
5. Should I have a Testamentary Trust Will?
In our view, it is beneficial to have a Testamentary Trust Will is most situations.
Having a Will which allows your beneficiaries to establish a trust for their inheritance has many advantages including asset protection, tax minimisation as well as the opportunity for future tax planning for your beneficiary and their family.
6. Should my partner and I consider a Mutual Will?
A Mutual Will Agreement is a contract entered into by two people at the time they prepare their Wills together.
The Mutual Will Agreement sets out the specific clauses of the Wills that the parties agree they will not alter after the death of one of the parties.
Whilst a Mutual Will Agreement can be viewed as inflexible, there are situations where it is appropriate. However, it is an agreement which should not be entered into without legal advice.
7. Should I seek advice from an estate planning lawyer?
Legal considerations for blended families can be complicated. We strongly encourage that when making or reviewing your Will, you seek advice from an experienced lawyer specialising in Wills and estate planning to discuss your personal situation and family circumstances.
It is essential that you have a full understanding of your estate planning options and the advantages and disadvantages of each so you can make an informed decision, based on your specific set of circumstances.
If you have any questions or concerns, do not hesitate to contact us to discuss your options or to make an appointment.
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