Estate planning for blended families: navigating complexity to protect everyone
While blended families can create a rich and fulfilling family life, it also brings unique challenges when it comes to estate planning.
You may have children from a previous relationship, children with your current partner, stepchildren, a new spouse, property from before your current relationship, or assets you want to keep within a particular branch of your family.
You may want to make sure your partner is financially secure while also ensuring your children ultimately receive an inheritance.
There isn't one structure that works for every blended family.
The important thing is to identify what you want to achieve and build your estate plan around those goals.
Fair doesn't always mean equal
One of the biggest questions in blended-family estate planning is what "fair" actually means.
You might want to divide your estate equally between all of your children. You might want to provide more for a child who has greater financial needs. You might want your spouse to have the financial security to continue living in the family home, while preserving some of your wealth for your children. You might want to treat stepchildren in the same way as your biological children.
Or you might have completely different wishes. There is no universal definition of fairness.
Your estate plan should reflect your wishes while taking into account the legal framework that applies to your estate and the potential for family members to make claims against your estate.
The family home can be one of the biggest challenges
The family home is often one of the most difficult assets to deal with in a blended family.
You may want your spouse to be able to continue living in the home after your death, but you may also want the property to ultimately pass to your children.
Leaving the home outright to your spouse gives them complete ownership. They can then decide what happens to the property during their lifetime and under their own estate plan. There are other structures that may be considered.
For example, a Will can potentially provide a spouse with a right to occupy or use a property, while providing for the property to ultimately pass to other beneficiaries. These arrangements need careful drafting.
The Will may need to address matters such as who pays rates, insurance, maintenance and repairs, what happens if the surviving spouse moves into aged care, whether the property can be sold, and what happens if the property is sold or replaced.
The right structure depends on the circumstances of the family and the objectives of the estate plan.
Testamentary Discretionary Trusts
A testamentary discretionary trust, or TDT, can be useful in some blended-family estate plans.
Rather than an inheritance passing directly to a beneficiary, assets can pass into a trust established under the Will. A trustee then manages the trust and distributes benefits to eligible beneficiaries in accordance with the trust terms. This can provide flexibility around how an inheritance is managed and who can benefit from it.
For example, a carefully structured TDT may allow a surviving spouse to benefit from assets during their lifetime while also preserving the potential for children to benefit from the trust. It can also provide asset protection and, in appropriate circumstances, tax advantages.
A TDT doesn't automatically solve the challenges of a blended family.
The trust needs to be carefully designed around the family's circumstances, including who can benefit, who controls the trust, and what happens after the surviving spouse dies.
Superannuation needs its own strategy
Superannuation is another important part of blended-family estate planning.
Your superannuation doesn't automatically form part of your estate simply because you have a Will. Depending on the circumstances, a superannuation death benefit may be paid directly to an eligible beneficiary or to your legal personal representative. This means your superannuation arrangements need to be considered alongside your Will.
Death benefit nominations can be an important part of this strategy. The type of nomination available, how long it remains effective, and the requirements for making it valid depend on the rules of your superannuation fund. Some nominations lapse after a set period, while others may be non-lapsing.
There are also restrictions on who can receive a superannuation death benefit directly from a fund. For a blended family, this can become particularly important because the people you want to benefit from your estate may not all be eligible to receive your superannuation directly.
The tax consequences can also differ depending on who receives the benefit and how it is paid.
Superannuation should be reviewed as part of the overall estate plan, rather than treated as a separate exercise.
Binding Financial Agreements
If you have entered into a second or subsequent marriage or relationship, you may also want to consider whether a Binding Financial Agreement is appropriate.
A BFA is a family law document that can deal with financial arrangements between partners. It isn't a substitute for an estate plan, and it doesn't determine all of the issues that need to be addressed in your Will.
There can, however, be circumstances where family law advice about a BFA forms part of a broader strategy.
We don't provide family law advice, but we can refer you to a trusted family lawyer if you would like to explore whether a BFA may be appropriate for your circumstances.
Think carefully about your executor
Your executor will have an important role in administering your estate.
They may need to deal with property, financial institutions, superannuation, beneficiaries, tax matters, and potentially disputes or claims against the estate. In a blended family, you should think carefully about who is best placed to take on this role.
That might be your spouse, an adult child, another family member, a trusted friend, or an independent professional. There is no single right answer.
The important thing is choosing someone who is capable of carrying out the role, understands the responsibility involved, and can manage what may be competing interests within the family.
What about your children?
If you have children under 18, their care should also form part of your estate planning.
You can appoint a testamentary guardian by Will, subject to the Queensland legal framework applying to your family.
This is particularly important where there are complex family circumstances or where you have concerns about who would care for your children if something happened to you. The position can be different where another parent survives, so guardianship arrangements should be considered in the context of your family's actual circumstances.
You can also prepare a Letter of Wishes to provide practical guidance about how you would like your children to be raised. This might cover education, activities, family relationships, religious or cultural practices, and other things that matter to you.
A Letter of Wishes doesn't replace the legal provisions of your Will, but it can give the people caring for your children valuable insight into your wishes.
Consider documenting why your estate plan looks the way it does
Blended-family estate plans can sometimes look different from what other people might expect.
You might leave different amounts to different children. You might provide for your spouse in a trust rather than giving them assets outright. You might make arrangements for one child who has greater financial or support needs. You may decide not to provide for a stepchild in the same way as your biological children. There can be good reasons for these decisions.
It can be useful to discuss those reasons with your estate planning lawyer and consider whether they should be documented as part of your estate planning records.
This doesn't prevent someone from challenging an estate, but a carefully considered and documented estate plan can help demonstrate that your decisions were deliberate.
Keep your estate plan under review
Blended families can change significantly over time.
You may marry, separate, have another child, become a grandparent, acquire significant assets, sell the family home, or experience changes in your relationships with your children or stepchildren. Your superannuation arrangements may also change.
These are all reasons to review your estate plan.
We recommend reviewing your estate plan regularly and whenever there is a significant change in your family, relationships, assets, or circumstances.
Questions to consider
If you're part of a blended family, some useful questions to discuss with your estate planning lawyer include:
Who do you want to benefit from your estate?
What does "fair" mean to you?
Do you want your spouse to have the use or benefit of the family home?
Who should ultimately inherit the family home?
Do you want your children to receive their inheritance directly, or would a trust structure be appropriate?
How should your superannuation fit into your estate plan?
Who should make decisions for you if you lose capacity?
Who would you want to care for your children if you die?
Who is best placed to act as your executor?
Are there family law issues that should be considered alongside your estate plan?
Are there reasons for your decisions that should be documented?
Blended-family estate planning requires you to think about the people you love, the relationships within your family, and what you want to happen over time.
There may be several ways to structure your estate plan. The right approach depends on your family.
If you're part of a blended family, we'd be happy to help you work through the issues and create an estate plan that reflects what matters to you.
The information in this article is provided for general information and educational purposes only. It is not legal advice and should not be relied upon as a substitute for advice about your individual circumstances.
Estate planning and succession laws can be complex and may vary depending on your circumstances. The information in this article is current as at the date of publication and may change over time.
If you need advice about your own circumstances, you should obtain independent legal advice from a qualified lawyer.