Embarking on a new relationship is an exciting time, especially for individuals who have come out of a relationship breakdown or endured the loss of a long-term partner. Often in the process of organising their new life together, a couple may lose track of the importance of preparing an estate plan to reflect their changed circumstances. A blended family is a situation where one or both partners have children from a previous marriage or relationship. Taking the time to consider a well thought out estate plan now can help avoid the potential for family conflict in the future.
Generally, the biggest challenge that blended family couples face when considering a new estate plan is the conflict between providing for each other in the first instance whilst also providing for their children after they have both passed away.
There can be many traps and pitfalls when blended family couples decide to set up ‘Simple Wills’ rather than thinking through the possible scenarios and how various parties (such as the children) will be impacted.
Often ‘Simple Wills’ leave the entire estate to each other and then equal shares to the children of each party after they have both passed away. Couples often neglect to consider the risk of the surviving partner simply preparing a newly drafted Will after their partner has passed away. There is the risk that a new Will may favor their own blood-line children and take away any intended inheritance for the stepchildren. There is also longevity risk where by the surviving partner may live another 10 or 20 years which will usually deplete the estate’s value that the children receive. There are options available which can help prevent someone from either revoking or changing their Will after the death of their partner. These measures can provide an element of comfort and protection that the children will not miss out on their expected inheritance.
Another important factor that is often overlooked in blended family situations is the consideration of how assets will pass to beneficiaries where the asset is not automatically captured under the terms of the Will. Some common examples include –
Superannuation Assets – the trustee of a superannuation fund will generally pay the proceeds based on the wishes outlined in the deceased death benefit nomination form. Depending on the nomination, the superannuation proceeds are generally pay directly to the estate or directly to an individual in the form of either a lump sum or a pension. In blended family situations its not only important to consider who will receive the death benefit proceeds from superannuation but also how the death benefit will be taxed in the hands of the beneficiary.
Jointly Owned Assets - a couple’s principal home can be the most valuable asset that they own. More often than not couples tend to purchase their home as ‘joint tenants’. This type of home ownership will result in the entire asset automatically passing to the surviving owner upon death and therefore bypassing the deceased estate. There are alternative ownership options available such as owning your principal home as ‘tenants in common’. This type of ownership allows each member of the couple the opportunity for their proportionate share to be distributed in accordance with the wishes in the Will.
Family Trust Assets – the control of family trust assets after death will depend on appointer succession clauses in the trust deed and the gifting of the shares in the trustee company (where there is a corporate trustee in place). It is important that the trust deed is properly examined to understand the provisions for succession upon death. If the surviving partner gains control of the family trust then the step children in a blended family scenario may miss out altogether.
An important consideration for blended family couples is the choice of executor. The executor is the person (or company) nominated to ensure that the deceased wishes are carried out in accordance with the Will. In blended family situations it can be a sensible option to consider nominating more than one person for this role such as a joint executor. The joint executor could be a neutral person or independent trustee company. This strategy can often help avoid unnecessary conflict during the administration of the estate and assist with beneficiaries receiving entitlements in a timely fashion.
In summary when preparing an estate plan it’s important for blended families to –
- Clearly think through what their goals and objectives are
- Take into consideration all assets in the estate plan (including joint assets / superannuation / family trusts)
- Consider how they wish to benefit everyone in the family tree including their spouse, children and step children.
- To regularly review the overall strategy as family, health and financial circumstances can significantly change over time.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Hillross Financial Services Limited and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information. Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376), Authorised Representative and Credit Representative of Hillross Financial Services Ltd, Australian Financial Services Licensee and Australian Credit Licensee 232 705.