Most of us appreciate the importance of making a Will and having an estate plan that sets out how we would like to provide for and pass on assets to our loved ones when we die.
If, like many Australians, you belong to a blended family, you may have additional factors to consider when preparing your estate plan. Typically those considerations will include ensuring that the competing interests of children from past and present relationships are addressed, whilst also ensuring that a current partner is provided for.
Following are our top estate planning approaches for members of a blended family.
Make a family tree and identify potential issues
Because of the complexity of some blended families, the importance of making a family tree cannot be over-emphasised. The tree should identify immediate family members, former spouses, children from past and present relationships (biological, adopted and step-children), as well as anybody else who is, or has been, financially dependent on the Will-maker.
Making a family tree helps to:
- consider the testamentary wishes of each partner and identify those they wish to benefit from their estate;
- acknowledge the potential for disputes and family provision claims and, as far as practicable, structure assets holdings and employ other strategies to safeguard against these;
- identify those that may have a moral or legal claim on the Will-maker’s estate.
Look at your major assets
Real estate and superannuation interests are often our most significant assets. Understanding some legal concepts regarding these assets can greatly assist with your estate planning.
If you hold real estate as a joint tenant, the principle of survivorship applies. This means that your share of the property will immediately vest in the surviving joint tenant when you die. It will not form part of your estate regardless of what your Will might state.
If this is not your intention, you and your partner may consider severing a joint tenancy and instead holding the property as tenants in common. In this case, either of you may leave your share of the property to whomever you wish by a direction in your Will.
Different approaches can be used for different scenarios.
Your lawyer can advise and assist in severing jointly held real estate and also help to create a joint tenancy where that is desirable to reduce claims against your estate.
A common misconception about superannuation is that it automatically forms part of your estate. This is not the case. A superannuation fund is only permitted to directly pay a death benefit to a ‘dependant’ of the fund member or otherwise, to your estate.
A ‘dependant’ includes a spouse (including a de facto partner of same or opposite sex), a person with whom the fund member had an interdependency relationship, a child of any age or a person who is financially dependent on the member. A child includes a biological child, adopted child, step-child and ex-nuptial child.
Fund members can choose who receives their death benefits by completing a Binding Death Benefit Nomination. This circumvents the trustee’s discretion and directs it to pay benefits to the dependant nominated by the member.
In a blended family, it may be appropriate for fund members to direct the trustee to pay all or some of their death benefits to their child or children to guarantee that they receive an inheritance immediately after they die. In this case members will need to consider whether there will be sufficient funds for the surviving partner as well as the tax implications. Advice should be considered from a lawyer or financial professional.
Consider different types of Wills
An example of a simple Will for a married couple is one that provides for the estate to go to the surviving partner in the first instance and then upon his or her death, to their children. This is generally not ideal for blended families as the children of the deceased partner will need to wait until the step-parent dies before inheriting under the Will. There is also a risk that the surviving partner may subsequently change his or her Will to the effect that the children of the partner who dies first miss out altogether.
Different types of Wills and provisions can be used to avoid these issues and your lawyer can advise on the most appropriate for your situation. The following are some examples.
A testamentary trust is a trust contained in a Will that is created upon the testator’s death. In the case of a blended family, a separate trust can be created for each child which effectively separates assets allowing each beneficiary to receive and deal with their respective share via an appointed trustee (which may or may not be the beneficiary).
Testamentary trusts can also provide for asset protection and have taxation advantages. They are however complex and require ongoing management. Consequently, thorough consideration should be given as to whether the benefits outweigh the costs of creating and administering a trust.
Mutual Wills Agreement
A Will may leave assets to each partner and, on the surviving partner’s death divide the combined assets between all children (from former and present relationships). This may technically be ideal however there is nothing to prevent a surviving partner altering his or her Will after the first partner dies, effectively leaving out a child or children of the first-deceased partner. A Mutual Wills Agreement can help to prevent this.
Essentially, the partners agree on the beneficiaries (for example children from both partners’ past and present relationships) and how their assets should ultimately be distributed. This is reflected in reciprocal Wills and a binding agreement to the effect that neither party will alter his or her Will after the other’s death.
The surviving partner has an obligation to hold the assets on trust for the beneficiaries named in the Will and is bound by that agreement. Those benefiting under the Will should be aware of the agreement so enforcement action can be taken if necessary.
Effective estate planning takes time and careful consideration. Every family is different and there is no one perfect solution. Talking to an estate planning lawyer helps to identify the potential issues that may arise and to devise strategies to address these issues to ensure that your intended beneficiaries are protected when you die.
If you or someone you know wants more information or needs help or advice, please do not hesitate to contact your adviser who will be able to refer you onto a specialist in this area.
Source: Donlan Lawyers