Australia’s 2016 Census found that ‘blended’ families – where one or both partners with children have remarried or repartnered – accounted for 3.7% of the nation’s families.
This figure includes families with two or more children, at least one of whom is the natural or adopted child of both partners and at least one other child who is the step-child of one of them.
A further 6.3% of families were classed as ‘step families’, where there is at least one resident step-child, but no child who is the natural or adopted child of both partners.
The take-out is that Australia’s traditional conception of the family unit is gradually changing. More and more people will have two or even more ‘families’ during their lifetime.
This trend poses a particular challenge for estate planning and succession. Working out how to provide in a will for a former spouse/s, children from past and present relationships, and a current spouse can become a complex process.
A clear estate plan is vital for a person with a blended family to avoid disputes or family provision applications (‘FPAs’) by aggrieved beneficiaries once the will-maker has passed. This can be a difficult issue to grapple with, particularly when you may be on poor terms with a former spouse but still want to look after your children from that earlier relationship.
This article provides some ideas on how this should be done but the essential advice is that you should consult a legal professional experienced in wills and estates to create a workable and enduring estate plan.
What steps should you take?
Depending on the complexity of your family history and your current family circumstances, some wills and estates experts suggest you first construct a family tree.
This visual aid should help identify all those who are potential beneficiaries or who are otherwise financially dependent on the will-maker, including children from all relationships (including biological, step and adopted children), former and current spouses, and any other family members or dependants.
In doing so, you will help identify the people who may have a moral claim on your estate as well as those who may potentially raise a dispute or an FPA for a share of the estate.
Next, it falls to examine your assets and how they are structured. Not all the assets you accrue in life are automatically considered part of your estate. The largest assets in the lives of most people are their house and their superannuation benefit.
Property: In terms of the house, the key issue is whether you hold the property in joint tenancy with your current partner. If so, the legal principle of survivorship applies and the asset will pass to the surviving partner when the other partner in the joint tenancy dies, regardless of whether a share of the property was left to other beneficiaries in the deceased’s will.
For this reason, many people in a second, or third, relationship will instead hold any real estate they own with the new partner as tenants in common. By doing so, when one of them dies, the deceased’s share passes to the beneficiaries he or she nominates in their will, such as their children from an earlier relationship, for example. Similar separate arrangements may also be preferable for other assets help by a couple who are in a second or third marriage.
It is possible to grant a ‘life interest’ in the will to allow a surviving partner to continue to live on the property, despite the tenancy in common. Legal advice should be sought before making this grant.
Superannuation: Many people are unaware that their superannuation benefit is not automatically included as part of their overall estate. In fact payment of a death benefit is at the discretion of the superannuation fund trustee, who must pay it to a dependant – defined as a spouse (including a de facto or same-sex partner), a person with whom the fund member had an interdependency relationship, or a child of any age or a person who is financially dependent on the member (including biological, adopted or step-child).
The trustee’s discretion can be directed, however, by the fund member making a Binding Death Benefit Nomination which instructs to whom the benefit should be paid among the person’s dependants. In blended families, this will require a balancing exercise to ensure children from past and present relationships are provided for by super, as well as a surviving partner. Tax implications also need to be considered. Expert financial and legal advice is vital when it comes times to make a Binding Death Benefit Nomination.
Different types of wills
A common problem when people remarry is that they make a will which leaves their estate to the new partner and thereafter, their children from a former relationship. This means that when the will-maker dies, his or her children must wait until their step-parent dies to inherit from the estate. The difficulty arises when the surviving partner then changes his or her will to favour other beneficiaries, sometimes leaving the step-children out of the will altogether.
To avoid this scenario, there are several different ways to make a will.
Testamentary trusts: People in blended families creating an estate plan often consider a testamentary trust as part of their will. This structure offers flexibility by essentially creating a separate trust for each child of the will-maker, allowing for each beneficiary to receive and manage their share of the estate through an appointed trustee. This arrangement protects an estate from being diverted to a ‘new’ family by a later partner of the will-maker.
Trusts also have tax and asset protection advantages, particularly where a beneficiary may be poor with money handling or work in a high-risk profession. Professional advice should be sought on setting up a testamentary trust as they require ongoing management.
Mutual wills: This is an agreement between current partners, for example, that neither will change their will during their lifetimes without the approval of the other party.
This helps prevent the situation where a new partner who inherits from a deceased partner changes their will to deprive the deceased person’s other beneficiaries of a share of the estate. It can also allow the surviving partner to continue to live in a home that has been gifted to the deceased’s children.
Under the agreement, the surviving partner must hold the assets on trust for the beneficiaries named in the will and is irrevocably bound by the agreement.
Life insurance: Life insurance policies are a good way for a person to make an immediate and significant gift to children from past or present relationships so that they inherit immediately after your death, rather than wait for a surviving partner to die. Similar to superannuation benefits, one or more life insurance policies can nominate intended beneficiaries to receive the pay-out on your death.
The importance of legal advice
It’s increasingly common for people to have more than one family in their lifetime, but this brings with it added complexity in terms of their succession plans.
Specialist wills and estates lawyers like our professionals at Big Law can play a vital role in helping you set up an estate plan to deal with all eventualities once you die. Creating an estate plan consists of more than just a will and also deals with the assets that sit outside of the traditional notion of an estate, such as superannuation and life insurance.
The ultimate aim is to prevent a situation where your beneficiaries after your death are unclear as to what your intentions were, or there is an unfortunate battle between the ‘new’ family and the ‘old’ family. This is an all too common event.
For an initial discussion about making an estate plan, call our friendly team today on 1800 431 592.