It’s common for couples to get together in circumstances where one or both may have children from previous relationships, forming a ‘blended family’. This can lead to difficulties for estate planning, as there is likely to be some disagreement when trying to determine how your Estate should be distributed between one another and respective children.
Often partners will leave their combined total wealth to one another in the first instance, and then when they have both passed away, everything goes to their adult children. Comparatively, in blended family circumstances partners may wish to leave their combined total wealth to one another in the first instance, but likely will have different priorities to be balanced regarding what happens after they have both passed away.
There are a few ways of managing this balance to try to ensure that everyone is satisfied, and no one challenges your Will.
Strategy 1: Immediate Gifts
Where you have substantial assets, it’s worth considering giving immediate gifts to your children upon your death in the form of an amount of money, or a specific asset such as real estate or a share portfolio. This way, your children can be certain that they are definitely receiving something, even if it may not be exactly what they were hoping for.
This strategy can work through the Will when each partner has assets in their sole personal name, so the Will can directly gift the assets upon each person's death.
This may also work if you have control of a trust, and your partner won’t need the trust assets to live on. Assets held in trusts do not belong to an individual person, and don’t pass by your Will. In these circumstances, you may be able to arrange for control of this trust to pass to your children, although this will depend on the terms of the Trust Deed. There are pros and cons to this strategy, but it can be particularly helpful if there is any concern about a challenge to the Will, as trusts can be dealt with outside of the Estate and may not be susceptible to a challenge.
One issue with the strategy is that it will only work if you have sufficient assets in your sole personal name. If you and your partner own all or the majority of your assets jointly, on your death these assets will pass to your partner by the ‘right of survivorship’ and therefore they will not pass by your Will.
Strategy 2: Trust the Survivor
As stated previously, many couples prioritise each other over their adult children, and don’t want anything to go to their children until they have both passed away. For these couples, they just want to pass everything to the survivor, and hope things work out as they intend in the longer term.
They are aware that the surviving partner, who has received the benefit of all the combined total wealth, may gift assets during their lifetime, change their Will to pass assets to only their own nominated beneficiaries, or possibly get a new partner leaving their Estate open to a challenge from a future partner. In any event, they decide they don't want to deal with this in their own estate planning, and simply hope that “it will probably work out.”
Strategy 3: Creation of Life Interest, Capital Protected Trust, or Other Limited Gift
Where you have the general intention to benefit your partner for their lifetime, and then ultimately to ensure your assets pass to your own children, this requires careful consideration of the structure of your estate plan.
It may be possible, depending on the structure of ownership, to provide your surviving partner with the use and benefit of assets and income from these assets for their life, but protect at least a part of the capital (that is, the assets themselves) for your own children you’re your surviving partner has passed.
There are a lot of variables to this strategy, but the ownership structure is the most important thing. It is difficult to set out basic examples as this requires a holistic discussion with you along with an accountant and/or financial advisor, but it is often a viable strategy.
Combination of Strategies
Most commonly, couples in a blended family scenario will consider a combination of strategies. For example, your superannuation may pass directly to your surviving partner with no limitations or restrictions in order to maintain the super in a tax-free environment; however, you may want your family home to pass to your partner subject to a lifetime benefit, meaning the surviving partner can reside in the home for their lifetime, but then the respective interests of each partner ultimately pass to their own children, and other personally held assets of each partner may pass directly to their own children upon their death.
Guardianship of Children
Where blended families involve younger children, guardianship can be a particular concern. You may want to ensure that your children remain with your current partner if they’re still young when you pass away.
The most important thing to note is that, in all cases, guardianship provisions in Wills are not binding. They’re 'wishes' only, as the best interests of the children are always the top priority. The end result may depend on the age of the children, their own wishes, and whether their other parent is still alive.
In a blended family scenario, where your children have spent a lot of time with your current partner, if you pass away your partner definitely has standing to apply for custody or at least contact, and your Will can allow for any legal costs of such an application to be borne by your Estate.
Minimising Will Challenges Generally
Challenging a Will invariably results in a lot of unnecessary expense and heartache for family members, and while there are specific strategies to deal with blended family situations, it is also worth considering more general practical strategies to minimise the likelihood of challenges to your Will.
It is often helpful to have a family conference to discuss your plans with your family and any other prospective beneficiaries. This provides an opportunity to clearly express your wishes, manage expectations and, where necessary, have the difficult conversation now to avoid conflict later.
We can provide advice tailored to your specific family circumstances, and advice on how to minimise any challenges to your Will. For more information, or to make an appointment with our Wills & Estates Division contact our support team.
Insight by Rohani Bixler & Luke Palmer.