What Blended Families Should Know About Estate Planning

Estate planning is always an emotional piece of the financial planning jigsaw but if you have your own children and stepchildren to consider, the situation might be even more complicated. For blended families – couples with children from previous relationships – it’s important to plan ahead, be open and honest and share your wishes with everyone concerned. It’s of course worth remembering that your situation will be unique to your family, and planning what happens to your estate can be a highly sensitive area to deal with.

What is a blended family?

Blended families, known also as stepfamilies, are those which see two individuals, each with their own children, re-marrying or forming a new partnership. They may then go on to have more children together. With divorces rising blended families are much more usual.

How does having a blended family differ from traditional estate planning?

With a blended family there are clearly added dimensions to the family dynamic to consider. Alongside this, wealth is increasing, and inheritances are growing. This mixture can make some situations extremely complicated, and getting the right plans in place for your estate can seem overwhelming.

Why do children get disinherited under will based plans?

When thinking about this area it’s useful to consider why it’s vital to get robust estate plans in place. A useful example is where a widow re-marries but has children from her first marriage. She feels that she can rely on her new husband to “do the right thing”, and they keep things simple by planning to leave their estates to one another. She feels safe in the knowledge he will then leave a share of the residual estate to her children from her original marriage.

All feel that this is a simple and easy option and isn’t too complex to enact when the time comes. However, after her death the husband remarries and over time loses contact with the children of his former wife. He’s influenced by his current spouse to leave the estate he’s inherited to her, and consequently the children from the former marriage don’t inherit from their mother’s estate.

Unfortunately, this is an all too common situation. There have also been some high-profile cases in recent years which demonstrate the challenges of estate planning with blended families. One of the latest examples is the Miles vs Shearer case which reached the High Court in 2021. After gifting a sum to his daughters from his first marriage whilst he was still alive Mr Shearer then advised he wouldn’t provide them with any further support. He then chose to exclude them from his Will. After his death his daughters appealed the Will and applied to the courts for maintenance from their father’s estate. Their claims were rejected. The case demonstrates the importance of properly and clearly explaining plans to your family, perhaps also in writing, so that everyone concerned is aware of what will happen when the time comes.

Considering a trust

Fortunately there are some estate planning solutions which can help make things easier for everyone concerned. You can choose to set up certain trusts to help protect assets and ensure they pass on in the way you want them to. One of the most common options is a Life Interest Trust. This option allows any surviving spouse to be given an income or the use of any assets, such as the family home, until their death.

At this point, the remaining estate passes on to the children of the first marriage. It can be a restrictive solution, but if set up in the right way does allow the trustees the power to release capital where needed. It’s worth knowing that a Life Interest Trust is a somewhat “locked in” option – but it does offer a guarantee that the children will eventually receive their inheritance.

Another option is the more flexible Discretionary Trust, which enables your estate to be distributed to a number of beneficiaries. It’s usually backed up by a letter of wishes which you can write to give trustees some guidance about how you’d like the Trust to be distributed. It does of course then fall to the trustees to make the right choices; and they might still opt to distribute the funds to the surviving spouse, which is well within their power. To safeguard against this one or more of your children can be appointed as a trustee so that no decisions can be made without their approval. Other options include appointing your surviving spouse or, ideally, an impartial, third party professional.

It’s also worth considering Inheritance Tax (IHT) which could be an issue if choosing to leave any funds direct to children. In certain circumstances, IHT could force the sale of a property if funds are needed to pay the Tax.

Plan for a potential remarriage

If you are re-marrying and have children from a past relationship, it’s vital that you are open with your new spouse or partner and take time to discuss some of the potential pitfalls of simply leaving your estates to one another (referred to as ‘mirror’ wills). Some of the main concerns to consider are:

1. If you leave your estate to one another complete control can be lost regarding beneficiaries unless you choose to create a Trust.
2. If the surviving spouse is declared bankrupt, all the estate of the first to die is lost. A Trust will protect the funds.
3. Where the surviving spouse, who has remarried, then divorces, if the agreement has been to benefit children from a former marriage and their Will supports this, then a subsequent divorce could mean all or some of those assets could be lost in any settlement.

Being honest, where possible, with your families too, means there should be no surprises when the time comes. It’s always better to have these conversations with everyone now, rather than after death, when it’s too late and emotions can also play a significant part in any discussions.

Leaving assets to children

If you die without making a Will, then your assets will be shared according to the laws of intestacy. These strict rules mean that your assets pass to your immediate family – your spouse, children, siblings and so on. At this point the situation can be very difficult for all concerned as although it’s possible to challenge intestacy, it can make for a very strained period. Without a Will, your spouse is likely to be your main beneficiary so your children could receive significantly less or, depending upon the value of your estate, even nothing. Your stepchildren will then be in line to inherit your new spouse’s estate when they die.

Deciding who makes health care decisions

Another aspect of estate planning, linked to this area, is in deciding who might act on your behalf if you become unable to. A Power of Attorney can be useful here, as it appoints a nominated individual who you’re happy will act in your best interests. Choosing who to ask to fill this role can be difficult. You need to find someone who you trust to always work in your best interests, and who you can rely on to deal with the responsibility that comes with the role. Generally, most people will choose a loved one, like their spouse or child, together with a professional.

If your children are leading busy lives, it may well save them a good deal of strain to have somebody independent taking control of the finances and looking after matters day-to-day. This may be even more relevant if your children and new spouse do not get on.

What estate planning strategies can help?

Ultimately, it’s important to give yourself time to consider your options with an expert and explain your decisions to all concerned. There are a range of strategies available including keeping your Will up to date (and making sure you review it if your circumstances change, or every five years otherwise). Trusts and the use of gifts through your lifetime can also help distribute your estate fairly, and in line with your wishes at the time.

Estate planning for blended families from The Fry Group Dubai

With blended families there can be a range of complicated decisions to make when it comes to thinking about what you want to happen to your estate. Taking the time to consider your wishes, and different scenarios, can help prevent difficulties for your family in the future.