Estate planning for blended families can be complicated

If you are one of the 10%* of Australians who is part of a blended family or step-family, it is important to give careful thought to your estate plan to ensure no-one misses out, writes Marie Brownell, National Manager, Estate Planning, Equity Trustees.

With around a third of marriages ending in divorce, today’s families take many forms, which may include biological parents and children, step-parents, step-children, half-siblings and grandparents.

Estate planning for blended families is often more complicated, as there can be more family members and dependents to think about, often with competing interests. So how can you divide your wealth without dividing your (blended) family?

A common issue for blended families

One of the most common situations we see at Equity Trustees is where children from a first marriage miss out when assets are divided.

Let’s use the example of Pete, who has two children with his first wife, then after their divorce marries Judy, who has two children of her own. Pete and Judy have a basic will which specifies that their assets will pass to the surviving partner, with all four children getting a share of the estate after the last partner dies.

However, after Pete’s passing, Judy sees her step-children less and less and therefore decides to make a new will excluding them. Upon her death all Pete and Judy’s assets and property pass to Judy’s two children. 

Given Judy is their step-parent, it will be difficult for Pete’s two children to make a claim on her estate for financial provision. 

Options for structuring your estate plan

Many people do not understand that once they die, their surviving partner is free to do what they like with any assets they are left. For most people in a relationship or marriage, the standard arrangement is for all assets to pass to the surviving spouse. The presumption is generally that when the spouse dies, the joint or agreed wishes of the couple will be intact, and the circumstances basically the same as when they made their estate plans together.

But life can get in the way in a multitude of ways.

To avoid creating a situation where some parties feel unfairly treated or excluded, if you are part of a blended family you should clearly outline your wishes around providing for your spouse and any children in your estate plan. 

If you have sufficient assets, you may wish to make provisions for your children up front, so they receive some or all of their intended inheritance at the time you die. Or, if your spouse has enough assets of their own, you could bequeath your spouse a set amount and leave everything else to your children.

Some families also look at trust structures, where the surviving spouse gets the use and enjoyment of assets such as property while they are alive, then the assets within the trust pass to specified beneficiaries, such as adult children or grandchildren.

There is also the option of creating a mutual wills agreement. Mutual wills are wills made by spouses at the same time, together with a legally binding contract not to change their respective wills without the other’s consent. 

However, mutual wills are not a popular option in Australia – because striking the right balance for these can be a challenge. If they are too prescriptive about what can and can’t be done, they can potentially cause financial difficulties for the surviving partner. Conversely, if they are too general the surviving spouse could potentially spend all the capital within the estate before it passes to any children.

In blended families, it can also be useful to nominate a neutral party or an independent trustee company to act as executor. This can often help to avoid unnecessary conflict during the administration of the estate and avoid delays to the will being carried out.

Getting help with the right structure

When working with blended families on their estate plan, the team at Equity Trustees aims to minimise potential disputes that could arise further down the track. If your will is challenged, it can not only be stressful and upsetting for all parties involved but could also reduce the value of your estate once legal fees are paid.

Some of the things we look at are the family tree, the needs and circumstances of each family member and, of course, the wishes of the person making the will.

In summary, if you are in a blended family, think through your goals and objectives with regards to providing for everyone in your family tree, including your spouse, biological children and step-children.  Then seek out the right advice from an estate planning specialist, who can help you to document your wishes and review your strategy if your family’s circumstances change.

This article was originally published in Starts at 60 in June 2021

Find out more about Equity Trustees’ wills and estate planning here.

* ABS Census 2016