A blended family is one where one or both partners have children from a previous relationship. While many people intend to provide for both their spouse and their children, standard estate planning does not always achieve this outcome.
A common estate planning approach is to leave all assets to a spouse, with the expectation that children will inherit at a later stage. However, in blended families, this strategy can lead to unintended outcomes, potentially resulting in children from prior relationships receiving little or no inheritance.
Why can this happen?
There are several risks when assets are left entirely to a surviving spouse:
- The surviving spouse may remarry and leave the estate to their new partner
- The surviving spouse may change their Will to favour their own children or others
- The surviving spouse may use or deplete the assets during their lifetime
This is referred to as sideways inheritance, which is where assets pass away from the deceased’s biological children and instead benefit another branch of the family.
How can this be prevented?
There are several estate planning strategies that ensure your children are provided for:
1. Immediate Gifts to Children:
You may choose to leave part of your estate directly to your children upon your death, rather than relying on assets passing through your spouse later.
2. Life Interest in the Family Home:
Instead of gifting the home outright (given that you are not joint tenants), you can give your spouse a life interest. This allows them to live in the property for the rest of their life but ensures that ownership ultimately passes to your children, albeit possibly many years down the line.
3. Superannuation Benefits:
Superannuation does not automatically form part of your estate. Making a binding death benefit nomination ensures that your Superannuation is paid to your intended beneficiaries. A common option is to leave superannuation to your spouse and split remaining assets between your children and your spouse.
4. Testamentary Trusts:
A testamentary trust is created through your Will and comes into effect after your death. It provides flexibility and control over how assets are managed and distributed, offering additional protection for beneficiaries.
5. Mutual Wills Agreement:
A mutual Wills agreement is a binding arrangement between partners not to change their Wills after one of them dies. This helps ensure that agreed gifts, particularly to children, are preserved. If the surviving partner attempts to alter the arrangement, the court may intervene.
However, we generally do not recommend Mutual Wills agreements as they are inflexible, difficult and costly to enforce. Mutual Wills can become unsuitable if circumstances change drastically after the first death.
What if the Will is Challenged?
If a person feels they have not been adequately provided for, they may make an application to the Supreme Court to contest the inheritance.
You have 12 months after the death of the deceased to contest a Will and can do so if you are an eligible person. Eligible person may include:
- A spouse or de facto partner
- Biological children
- Stepchildren (in certain circumstances, such as where they were dependent on the deceased)
The Court considers factors such as financial need, the relationship with the deceased, and any contributions made to the estate when an inheritance is challenged. It weighs up each person’s interests and may make a provision or further provision to the person(s) who were inadequately provided for.
However, contesting a Will can have significant consequences, including legal costs and the potential to strain or disrupt family relationships. Such action should therefore be considered carefully. It is also advisable for parents to take proactive steps in their estate planning to minimise the likelihood of their children needing to contest the Will.
What happens if there is no Will:
If someone dies without a Will, their estate is distributed according to legislation.
Generally:
- The surviving spouse receives personal belongings and a statutory legacy (a fixed sum, indexed over time)
- The spouse also receives a significant portion of the remaining estate
- Children receive what is left after these entitlements
In smaller estates, this can mean that children receive little or nothing.
Providing for a current partner is often a priority but in blended families, it may not be the only consideration. Without careful planning, your intentions may not be carried out. Putting the right structures in place can help ensure that both your partner and your children are protected, and that your estate is distributed as you intend.
If you require assistance with estate planning, please contact us on 02 9150 6991, ad***@**********om.au.
Disclaimer: This information is for general educational purposes and does not constitute legal or financial advice.