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 our loved ones when we die.
If, like many Australians, you belong to a blended family, there are additional considerations when planning for your estate. Most typical will be ensuring that the competing interests of children from past and present relationships are addressed, whilst also ensuring a current partner is adequately provided for.
Following are some estate planning considerations for members of a blended family. This information is general only and we recommend you obtain professional advice unique to your circumstances from an experienced estate planning lawyer before taking any course of action.
Make a family tree and identify potential issues
Because of the complexity of some blended families, it is important for partners to make a family tree to identify immediate family members, former spouses, and 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, safeguard against these;
- identify those that may have a moral 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 assist with planning your estate.
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 no matter what your Will states. If this is not your intention, then you and your partner may consider “severing” a joint tenancy and instead chose to hold 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 gift or provision in your Will.
Your lawyer can advise and assist in severing jointly held real estate and explain the implications of doing so.
Many people assume their superannuation will be divided up in accordance with the wishes expressed in their Will, however that is not necessarily the case.
Death benefits, comprising the superannuation account balance and any life insurance payments, are usually paid to a ‘dependant’ determined by the superannuation fund trustee, or in accordance with a Binding Death Benefit Nomination (BDBN).
A ‘dependant’ for superannuation purposes 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.
In a blended family, it may be appropriate for fund members to direct the trustee to pay all or a portion of their death benefits to their child or children to guarantee that they receive an inheritance. In some circumstances though the opposite might apply and the superannuation member will want the superannuation to pass directly to a spouse outside of their estate for protection from claims of children. Members will need to carefully consider whether there will be sufficient funds elsewhere for a surviving partner as well as the tax implications of paying death benefits to a child or children. Advice should be considered from an experienced estate planning lawyer and financial professional.
Consider different types of Wills
An example of a common simple Will scenario for a married couple is one that provides for the estate to go to the surviving partner in the first instance but in the event of the spouse’s prior death then to their children. As blended families often comprise both biological and step children, this arrangement may not be an appropriate one.
Different types of Wills can be used to address some issues unique to a blended family and your lawyer can advise on the most appropriate for your situation.
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, depending upon the circumstances, 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. Testamentary trusts can also provide for asset protection and have very powerful taxation advantages. They are however complex and require ongoing management. Consequently, the benefits should outweigh the costs of creating and administering the trust.
A Mutual Wills Agreement is an agreement whereby the will-makers 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. Specialist advice should always be obtained.
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 contact us on (08) 8344 6422 or email [email protected].