Estate planning can be a challenging process, even for the simplest of family arrangements. So how do you manage estate planning when you have blended family arrangements?
Estate planning for blended families poses significant challenges and complexities and may raise issues that you may not have previously considered, therefore, careful estate planning is needed, particularly if you have children from a previous relationship as well as children or stepchildren with your current partner.
In blended family arrangements, you will need to consider the possible competing interests in your estate from your children (both current and from your previous relationship), your partner, and your stepchildren.
When engaging in your estate planning, it is prudent to first have an understanding of how your assets are owned, as this will guide you as to which assets form part of your estate and which assets do not.
Assets that are not part of your estate
- Jointly owned assets (as joint tenants), such as jointly owned property, will not form part of your estate and cannot be distributed or gifted under a Will. Rather, where property is owned jointly, the laws of ‘survivorship’ will apply, and the last survivor will automatically take ownership of the property upon the death of the other joint tenant.
- Superannuation is another asset that does not automatically form part of your estate unless you have a Binding Death Benefit Nomination in place nominating your estate or your Legal Personal Representative as the beneficiary. You should seek taxation and legal advice regarding your Binding Nominations and what options are best suited to your circumstances.
- Assets held under a Family Trust also do not form part of your estate asset pool, as they are owned by the Trust. In these circumstances, you should obtain legal advice regarding estate planning for the Family Trust and the appointment of successor Trustees and Appointors where appropriate.
Assets that do form part of your estate
Assets that form part of your estate are those assets you hold in your personal sole name.
Importantly, assets in your own name can also be available to interested parties to a Part IV Family Provision claim on your estate (that is when an eligible person contests the Will). This is an important point of consideration in the case of blended families, as your partner, children of your previous relationship, any children from your current relationship and stepchildren may be eligible to make a Part IV Family Provision claim.
Implications of how property is owned in estate planning for blended families
If you have re-partnered and either you or your current partner have children from a previous relationship and also have children together, then owning your family home jointly may not be appropriate for your circumstances.
Owning property jointly might be particularly problematic in the case of blended families for the following reasons:
- The property (although it may form the bulk of your assets) won’t form part of your estate, and ownership will pass to the surviving joint owner on your death;
- Your children of your previous relationship may not receive a share in the property, should your current partner subsequently change their Will after your death, leaving out your children from your previous relationship.
For blended families, it is preferable that property is owned as tenants in common. This allows you and your partner to each own a 50% share in the property, and your 50% share can be gifted under your Will. However, careful planning on how your estate is distributed will still be required.
Speak with an estate planning lawyer today: 03 9014 1299
Estate planning options for blended families
There are a number of options available that may be suitable for blended family arrangements. We outline two common options below.
Binding Mutual Wills
Binding Mutual Wills are essentially a contract between you and your partner. Your Wills are drafted on terms that you both agree to, including how your estates are distributed and to whom.
Binding Mutual Wills, because they act as a binding contract between you, prevent either of you from revoking or changing your Wills without the agreement of the other. Therefore, if one party dies, the other party will not be able to change their Will.
This option affords protection of your children’s interests as beneficiaries in the following ways:
- In the event of your death or your partner’s death, the surviving partner will not be able to change their Will to exclude any of the deceased partner’s children (including children from previous relationships) from benefiting from their estate upon death;
- It ensures that children from previous relationships will still receive the benefit of their share in your estates;
- Provides certainty and reassurance given that the Wills cannot be changed upon your death; and
- Your Wills are drafted on terms that you both agree to.
However, putting in place Binding Mutual Wills can have the following consequences:
- It can leave the surviving partner’s estate planning vulnerable because of the inflexibility of the Binding Wills, as they won’t be able to change their Will after your death. This could be problematic should their circumstances change significantly upon your passing, or they enter into another relationship and cannot change their Will to include their new partner;
- Binding Mutual Wills can add to the complexity of your future estate planning, particularly where amendments are needed to reflect changes to your circumstances;
- Complexities and conflict may arise where there is disagreement between the parties on what changes to make or where one party wishes to make a change and the other does not;
- If you are making changes to Binding Mutual Wills so that your Wills no longer mirror each other, you will need to sever the contract between you to make Binding Mutual Wills in order for new Wills to be made; and
- Binding Mutual Wills will not prevent any potential challenges (Family Provision claims) from being made to your estates. Such anticipated challenges could be when the surviving spouse enters into a new relationship or remarries, and the new partner or spouse seeks better provision under the estates as they were not included under the Will.
Include a right to reside in your Will
The inclusion of a right to reside (to each other) in your main residence will also provide some protection to your respective children. This will serve to quarantine your main residence, which may form the bulk value of your estates from your estate asset pool. In other words, the right to reside will act to separate your main residence from your asset pool that would normally be distributed under your residuary estate until certain events occur.
This option, unlike Binding Mutual Wills, which is a binding contract, creates a trust between your Trustees and the surviving partner whom the right to reside applies.
Where property is owned as tenants in common, you and your partner would each own a 50% or one-half share in your main residence. If one of you were to die, then the right to reside provides a right to the surviving partner to use (but not legally own) the deceased’s half-share in the home for their lifetime only. This means that the surviving partner could continue to reside in the main residence and use the deceased spouse’s 50% share in the main residence.
The right to reside in the main residence is provided for the duration of the surviving partner’s life and comes to an end upon the occurrence of the following:
- The death of the surviving partner whom the right to reside applies;
- Where the surviving partner enters into a new de facto relationship or remarries; or
- Where the surviving partner otherwise ceases to occupy the main residence.
The inclusion of a right to reside can also be constructed so that upon termination, your 50% share in the main residence will revert to your residuary estates and be distributed equally between your children, including stepchildren (where applicable/appropriate). However, it should be noted that this option does not prevent the surviving partner from changing their Will and removing stepchildren as beneficiaries to their 50% share in the property.
The option of including a right to reside allows greater flexibility in comparison to Binding Mutual Wills, as you both will still be able to update your Wills to reflect any changes to your circumstances without needing agreement of both parties or a severing of the contract to make Binding Mutual Wills.
Get help from a Wills and estate planning lawyer
We have significant experience in estate planning for blended families. Every family makeup is unique and it’s important to understand all the variables that lead to creating a successful set of estate planning documents. To discuss the estate planning options suitable to your circumstances, get in touch with one of our lawyers today.
Contact David Davis Lawyers
Phone: 03 9014 1299
Email: admin@ddavis.com.au