The term ‘blended family’ generally describes a family where either one, or both, parties to the current relationship have a child or children from a previous relationship, and may also have children together in the current relationship.
As you can imagine, estate planning can be a challenging task, both for the client and the advisor. When thinking about your future and providing for your family after you have passed away, the role of your solicitor is to understand your wishes and assist in ensuring that you provide adequately for your spouse, the children of your current and previous relationships and any other dependents. A key focus is often structuring your estate plan to avoid potential claims against your estate or other issues, and balancing this with your wishes. It will often also encapsulate elements of tax planning to ensure that the benefit received by your family is not diminished with unnecessary tax or other duties or liabilities.
Depending on your individual circumstances and wishes, your solicitor may suggest the use of one or more of the following strategies as part of your blended family estate plan:
- BINDING FINANCIAL AGREEMENT
A binding financial agreement is an agreement between you and your current spouse detailing how each other’s assets are to be divided between the family in the event that the relationship ends. The agreement may include different outcomes depending on the length of the relationship. If proper formalities are met (such as each party receiving independent legal advice as to the impact of the agreement on them personally) then the agreement will be legally binding. The terms of any such agreement should then be mirrored in the wills of each party.
- WILL CONTENT
Your will is central to your estate plan, and there are a number of mechanisms which can be included in your will to ensure that your spouse, children from your current relationship and children from a previous relationship are all adequately provided for. Some of the more common mechanisms are the creation of a testamentary discretionary trust within the will, or a portable life interest or right to reside in a particular property. These are strategies which provide a benefit to a person or multiple persons in the estate assets (usually the spouse), without actually transferring control or ownership of the asset to them, so that upon a designated time or event, that benefit will end and the control or ownership then passes to another party (usually children from a previous relationship).
- MUTUAL WILL AGREEMENT
Less restrictive then creating a trust or life interest, a Mutual Will Agreement is an agreement signed at the same time a couple makes their wills, with purpose of the agreement is to impose obligations on the surviving spouse to not change their will, even if they subsequently re-partner. This generally ensures that all children of the parties (from the current and previous relationships) are provided for in the manner that the parties agreed, and can be enforced by the children should the surviving spouse change their Will to the detriment of the children.
- USE OF EXISTING STRUCTURES AND ASSETS
If may also be possible to use existing structures (such as a Family Trust or Self-managed Superannuation Fund holding valuable assets) to provide a benefit to particular parties outside of the Will, by transferring control of those entities either during your lifetime, or upon your death. Another option may be to transfer assets to a particular person during your lifetime, or to change the ownership of the asset (such as a property) such that it will transfer to the intended beneficiary automatically upon your death (ie. by survivorship). The benefit of such planning is that assets held in trust structures, held jointly or gifted by you during your lifetime will generally fall outside of those which can be claimed against by challenging your will. However, there will also be potential control, stamp duty and tax consequences to be considered and therefore individual advice is required to ensure the best outcome for your situation.
The best outcomes for blended families are obtained when your family circumstances and individual wishes are considered carefully and holistically, to allow the most suitable combination of the above tools, structures and planning to be implemented.
If you wish to discuss your family estate planning please do not hesitate to contact our friendly Canny Legal team.