Blended families are often complicated and large but there are ways to divide your wealth fairly without dividing your family.

More than one-quarter of all marriages in 2021 included a partner who had been married before, according to the Australian Bureau of Statistics. It’s perhaps no surprise then that many families today include a complex array of relationships that can span multiple generations.

It poses difficult questions for parents and step-parents, who need to ensure that their estate is passed on fairly and equitably. 

Dividing the assets – who stands to lose?

Most people don’t realise that once they die, their surviving partner can do what they like with any remaining assets, especially if everything is left to them, as is common in most wills.

“Sadly, one of the most common situations we see is where children from a first marriage miss out when assets are divided,” says Michael Crowe, National Manager of Estate Planning.

“A classic example is when people get older and require aged care facilities – often the only alternative is to sell the family home to finance the move. As the home is often a core estate asset, selling it has the potential to rob future beneficiaries such as step-children, or children from a previous relationship, of a vital share of an asset when the surviving spouse passes away.” 

The same issues arise with other assets, which can be lost, sold, or even destroyed long before they get to the intended beneficiaries.

Estate planning strategies for blended families

While managing a blended family has its challenges, there are ways to minimise the chances of expensive family conflicts and ensure beneficiaries are looked after. However, different rules also apply in different states so it’s crucial to get expert advice.

1. Really 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 specialist advice to help you document your wishes.

2. Ensure your wishes are clearly laid out in your estate plan and update a will if necessary to ensure different scenarios are covered and that all beneficiaries are protected. This avoids creating a situation where some parties feel unfairly treated or excluded.

3. 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 pass away. If your spouse has enough assets of their own, you could alternatively bequeath them a set amount and leave everything else to your children.

4. Consider setting up trust structures, where the surviving spouse can use assets such as property while they’re alive, then trust assets pass on to specified beneficiaries, such as adult children or grandchildren.

5. Nominate a neutral party or an independent trustee company to act as executor. This can often help manage unnecessary conflict during the administration of the estate and avoid delays to the will being carried out.

6. Try not to be specific about gifts in a will, such as a particular house. Instead nominate a beneficiary to receive a percentage of an estate rather than specific assets.

7. If there’s a chance that an asset might not exist (or have already been sold) when the will maker dies, think about nominating a substitute in its place.

8. Rather than being joint tenants where a property automatically goes to the surviving tenant if the other tenant dies, a couple may consider holding a property as tenants in common, which means two or more people co-own property in agreed shares. The surviving spouse gets to use the asset as long as they want but if it is sold, their interest in the property can be transferred to the designated estate beneficiaries.

9. Involve your intended power of attorneys to ensure that any instructions in the will are clear and specific. They can apply to the court if necessary to make sure the gift to the intended beneficiary occurs.

10. Consider creating a mutual wills agreement – each spouse makes their will at the same time and agrees (through a legally binding contract) to not change them without the other’s consent. This requires balancing competing interests. If mutual wills are too prescriptive, they can potentially cause financial difficulties for the surviving partner, but if they’re too general, the surviving spouse could spend all of the estate’s capital before it eventually passes to any children.

More information about Equity Trustees’ estate planning services is available on our website.