In a ‘conventional’ family unit (is there such a thing?!) a standard Will is prepared by the testator, who likely chooses to leave their estate to their spouse and any children they have together. Estate planning can be less straightforward for someone in a blended family when there are children, step-children, spouses and exes to think about.
What is a blended family?
A blended family is formed when one or both partners in a marriage have had previous de facto partners or marriages. They may also have children from their previous relationship, as well as children born of their new relationship.
A previous relationship of either party may have also given rise to obligations that continue well past the end of that relationship. These may need to be considered as part of the estate plan moving forward.
It should be noted that blended families come about not only because of separation and divorce, but also because of the death of a spouse, leaving the surviving spouse to seek a new committed relationship.
Key considerations for Estate Planning in blended families
Couples in blended families can work together to prepare an estate plan in a collaborative and integrated manner which considers both the legal obligations and financial objectives of each individual.
Identify assets and liabilities
Planning should begin with a clear picture of any assets and liabilities that are held, to understand what will and won’t form part of your estate for distribution to beneficiaries nominated in your Will. Any assets owned jointly with a new partner, such as a home (owned as joint tenants), will automatically pass to your new partner upon your death, regardless of what your Will says. The same goes for any joint bank accounts.
If you would like to leave your home to your children, you might consider buying it with your new partner as tenants in common. That way each of you will retain a share of the house which could be left to the nominated beneficiaries. Owning the house in your own name is also possible, with the option of granting your spouse a life interest. This would allow them to continue living in the house until a specified point (usually their death or incapacitation) while protecting the value of the property for your children to eventually inherit.
Superannuation (and any associated life insurance), which may be one of your major assets, also does not automatically form part of your estate. A beneficiary must be separately specified to receive any payouts by way of a ‘binding death benefit nomination’, made via the super fund. Without this, the trustee of the superannuation fund will determine who receives the death benefit, which may be someone who you don’t want to receive it. Yikes.
Understand the family dynamics
In a blended family, there may be competing interests and complicated dynamics at play.
For example, you may want to provide for your current spouse, but also ensure that your children from a previous relationship are taken care of. Or, perhaps you want to ensure that only your children with that current spouse inherit your assets, but this can’t necessarily be guaranteed if they have to wait until that step-parent’s death for their inheritance. There is also always the risk that the surviving spouse might re-marry or change their Will, leaving everything to their own children or newest spouse.
If you have a former partner who was named as a beneficiary of your Will before you separate, they will remain a beneficiary until you change your Will or formally divorce. If you have not formally divorced and died intestate, the applicable laws may see your ex inherit your entire estate, including your super (not a super situation).
Clearly, there is need for some attentive consideration when it comes to dividing an estate among intended beneficiaries and working out what happens when certain people die or move on. The complex web of relationships means there can be unintended consequences where assets end up being divvied in unexpected ways.
Carefully consider your executor
The choice of executor is not an issue that is generally problematic for a non-blended family, but needs greater care and consideration in the blended family. This is because it can cause tension to surface if the choice of executor is seen as giving preference to one family member over another. For example, where a testator may wish for their adult child(ren) to be the executor(s), or if the testator appoints the new spouse instead of the child(ren) from the first marriage. Where this tension exists, the issue of who is to undertake the critical role should be fully explored.
Some testators may wish to appoint joint executors in an effort to appease and minimise tensions. But in the absence of an executor who is a clear thinking and trusted family member, or if the testator is hesitant, an independent executor should be considered.
Review your Estate Plan regularly
Ensuring your estate plan is up-to-date and communicative of your current wishes is vital for any family. For blended families, it is also imperative that the plan reflects the complexity and fullness of the unique family arrangement, and takes into account that family dynamics can change over time.
Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.