It is becoming increasingly common for couples to marry with one or both parties having children from a previous relationship. They may also go on to have children together. This is known as a blended family.
According to The Office for National Statistics, in 2017 there were 27.2 million households in the UK. By far the most common type of household is one family (with and without children). However, multi-family households account for over a third of all couples bringing up children today. So, it stands to reason that legal, financial and practical problems are commonplace among blended, or step-families.
The rise of the blended family model can lead to some complicated estate planning issues.
The concerns
Couples in blended families often face complex estate planning challenges, such as the dilemma of providing for their partner should they die first whilst also ensuring their own children will inherit their estate. They may have assets which they have brought into the relationship that they wish to ringfence for their own children.
As far as ‘blended’ families are concerned, the situation is likely to be complex. Without professional advice, blended families face the risk of costly legal disputes and the breakdown of family relationships. A professionally drafted Will can help reduce this risk and ensure that the right balance is achieved between providing fairly for all the children of the family and the surviving partner.
In a blended family situation, failure to make a Will can lead to the children of either party being disinherited.
As it can often be complex for a blended family, then many couples avoid the issue by adopting a simple plan or they do nothing at all. They will rely on their surviving partner to do what they think is right. But this can open up a host of issues to deal with.
Key considerations and impacts
Leaving no Will
When one spouse dies without leaving a Will, the rules of intestacy will apply to the administration of the deceased’s estate. Unfortunately, this can sometimes cause tensions amongst family members if they believe the rules of intestacy do not truly reflect what the deceased would have wanted.
Under the rules of intestacy, if the estate is worth £270,000 or less, the surviving spouse of the deceased will inherit the whole of the estate. If the estate is in excess of £270,000, the surviving spouse will also inherit half of the amount which is in excess of £270,000. The remainder will then be divided between any surviving children. What this means in practice is, quite often the children end up with nothing.
Tensions are further increased if the surviving spouse also dies intestate and their estate (along with everything they inherited from their spouse who died before them) passes to their surviving children, leaving their stepchildren without any inheritance at all.
Leaving everything to their surviving spouse
Another common mistake is leaving everything to the surviving spouse on the mutual understanding that when the surviving spouse dies, they will make provision in their Will for the children.
Marriage is a relationship based upon love and trust and it is therefore natural for a person to assume that, upon their death, their surviving spouse will ensure that their children are provided for. Unfortunately this is not always the case.
Creating Mirror Wills
Mirror Wills can be problematic for blended families. Mirror Wills are virtually identical Wills whereby each spouse leaves everything to the other spouse (should they die before them) and, upon the death of the surviving spouse, everything is left to their children. What is important to note however is that each party is free to revoke their respective Will at any time before or after the death of the other and shall not be under an obligation to dispose of the property in accordance with the Mirror Wills. In practice, this means that the spouse who dies first cannot guarantee that their children will benefit from their estate at all. Even if one spouse decided to change their Will whilst the other spouse was still alive, there is no obligation on that spouse to inform the other of their new Will.
If we look at this in the context of blended families, one spouse could die thinking that their children from a previous marriage will be looked after following the death of the surviving spouse but in reality, the surviving spouse could rewrite their Will cutting their stepchildren out completely and leaving everything to just their own children.
Providing immediately for children upon the deceased’s death
Whilst this may be thought to be desirable and a way of achieving certainty that the deceased’s own children will certainly benefit upon their death, care needs to be taken with this approach. If children inherit ahead of a surviving spouse, this may lead to inheritance tax being payable if the value of the deceased’s estate exceeds available allowances. Furthermore, this approach may not provide adequately for the surviving spouse/partner, meaning that they could challenge the Will on the basis of lack of sufficient financial provision for them.
Solutions to avoid inheritance disputes in blended families
There are various options available which are suitable for blended families. These include:
A Life Interest Trust
A Life Interest Trust will allow one beneficiary to benefit from an asset or income during their lifetime and, when that person’s beneficial interest comes to an end, usually on death or remarriage, that trust asset or income passes to another beneficiary.
These are popular with blended families. For example where the family home is concerned, a lifetime trust will allow the surviving spouse to have a lifetime interest in the property, i.e. live in the property until they die. Upon their death, the property will pass to their children.
A Life Interest Trust is also a good way of protecting assets which may be lost to bankruptcy, divorce (if the surviving spouse remarries), care home fees, and so forth. The surviving spouse never owns the assets, merely holds them on trust for future beneficiaries.
Leaving gifts to children
Alternatively, leaving specific or residuary gifts to children will allow for peace of mind that they will receive a legacy no matter what. The testator can state clearly what they would like each child to inherit so there can be no grey area. An example of this would be to leave a child a legacy of £10,000 or 20% of the residuary estate.
Tenants in common
Couples may also want to consider entering into a declaration to hold the marital home (or any other property they jointly own) on trust as tenants in common in specified shares, for example, 50/50. This would mean that when one spouse dies, their 50% share of the property falls to their estate and can be left to beneficiaries in their Will. This is the alternative to owning the property as joint tenants to which the principle of survivorship applies, i.e. when one spouse dies, the property is automatically transferred into the sole name of the surviving spouse.
Will in contemplation of that marriage
Another thing to be mindful of is the fact that any Will written prior to getting remarried will become null and void in the event of that marriage unless the Will was made in contemplation of that marriage. A new Will will have to be signed upon remarriage, otherwise, the rules of intestacy will apply.
Many of these issues can be dealt with by drawing up a legal document, but in so doing, each party will need to be clear about exactly what they want and wishes should be openly discussed.
Blended families and ensuring all wishes are met can be complex. The BTWC team are here to support you with your clients to ensure they can the right estate planning in place to help ensure minimal risk and conflict later down the line.