Estate planning for a blended family (i.e. a family in which a person has an existing spouse or partner and also children from a previous relationship) is important to ensure that all intended beneficiaries are provided for after you die and to minimise the potential for conflict within the family. Unfortunately, as all families are not the same, there is no one-fit solution that can be applied in blended family situations. If you are part of a blended family, it is important that you seek legal advice so that your Will and any other estate planning documents are tailored to suit your circumstances.
Some of the strategies that can be used in Wills for blended family situations are detailed below.
You can enter into an agreement with your spouse to make a Will on agreed terms that each of you promise not to revoke without the other party’s consent (i.e. a mutual will agreement (“MWA”)). Some issues that you should be aware of with this strategy include:
- A MWA does not prevent the surviving spouse from revoking the Will.
- A MWA does not prevent the surviving spouse from depleting the assets in the estate during their lifetime, which may leave the intended beneficiaries disappointed.
- Third party beneficiaries (e.g. your children) may need to initiate legal proceedings against the surviving spouse’s estate in order to enforce the MWA.
You could grant an interest that entitles your surviving spouse or another beneficiary (i.e. the life tenant) to use and enjoy specified assets and or income derived from such during the life of the beneficiary. On the death of the life tenant, the assets subject to the life estate are then distributed in accordance with the terms of your Will. This strategy is often used to provide for the surviving spouse during their life, whilst also promoting asset preservation in favour of the testator’s children.
Some of the potential issues you should be aware of with this strategy includes:
- Unless sufficient funds are set aside, there is a risk that the life estate assets will not be maintained and could fall into disrepair.
- Generally, the Courts do not consider a life estate to be adequate provision for a spouse due to their inflexibility and as a result there is a risk that this could give rise to a family provision claim.
Testamentary discretionary family trust
Another option that is available for you is to create a testamentary discretionary family trust. This is a trust created by your Will, which takes effect on your death that could provide for a wide range of potential beneficiaries. This strategy is often considered attractive for the following reasons:
- It provides numerous tax benefits (e.g. income received by a minor beneficiary is taxed at normal rates).
- It may also promote asset protection against dissipation by vulnerable beneficiaries, insolvency and family breakdown.
Outright division of the estate between beneficiaries
The most commonly used strategy is the outright division between beneficiaries. This strategy would allow you to distribute your estate between your surviving spouse and children from your previous relationship. The advantages of this approach include:
- Your surviving spouse will be able to take their benefit under the Will knowing that your children from the previous relationship have been provided for. As such, your surviving spouse is not unnecessarily harnessed to your family for the rest of their life.
- Your children will be able to take their benefit immediately (if they are not minors) and are not required to wait until the surviving spouse passes.
If you require advice with respect to your Will or estate planning, please contact the team of Estate Lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.