Estate planning for blended families
Mar 06, 2017Blended families and step-families are becoming increasingly common in Australia, creating new and additional estate planning needs and concerns which must be addressed.
What is a blended family?
A blended family is a family where one or both of the partners in the relationship have a child or children from a prior marriage or relationship. Often in blended family situations, parents want to ensure that their children from their previous relationship are adequately provided for in their will. In these circumstances the traditional simple will may not be appropriate and alternative estate planning tools may need to be utilised. Two such tools that are often utilised in blended family estate planning are mutual wills and testamentary trusts.
Mutual Wills
It is common for spouses to leave their entire estate to each other and then for the surviving spouse to provide for the respective families, which is referred to as a ‘mirror’ will. In blended family situations this can be problematic - upon the death of the first spouse, the surviving spouse may decide to revoke or alter their will (particularly if they have entered into a new relationship, and no longer have a relationship with their deceased spouse's children) and may decide to provide only for their children (and/or their new spouse), leaving the deceased’s children without provision under the new will.
In order to protect against this, the spouses can enter into an agreement to the effect that neither party will change the content of the ‘mirror’ wills without the consent of the other party. These agreements are known as Mutual Wills Agreements and are legally binding documents which act to limit the likelihood of the surviving spouse altering their will after the death of their spouse who cannot consent to the change. In the event that the surviving spouse alters their will, the affected beneficiaries under the previous will can seek the Court’s intervention to enforce the agreement - for breach of contract.
There are difficulties for the affected beneficiaries - for example, the affected beneficiaries would need to be aware of the surviving spouse changing their will, and would need to act quickly enough to prevent the surviving spouse from diminishing the estate (through refinance and/or transfers of assets to other parties).
Testamentary Trusts
A testamentary trust is a trust which is established under a will and arises on the death of the testator making the will. A trust is a relationship that exists where an individual or entity (known as the trustee) holds property for the benefit of another party. Under a discretionary testamentary trust the trustee has the discretion to distribute capital and income between a beneficiary or a group of beneficiaries nominated in the will.
A key benefit to establishing a testamentary trust within a blended family will is the ability of the testator to provide for a surviving spouse or partner, by way of a right of residence or providing an income stream from the trust, whilst also preserving assets and wealth for residual beneficiaries through the control of the trustee. It also allows for the exclusion of spouses of intended beneficiaries under the trust so that if a spouse re-marries or re-partners, distributions cannot be made to the new partner through the trust. Establishing a testamentary trust can also provide significant tax benefits through income streaming, particularly where there are beneficiaries under the age of 18.
What is the best option?
Keep in mind that failure to adequately consider your estate planning needs in a blended family situation can create tension within the family and result in a will being contested under the Succession Act 2006. There is no one size fits all approach given the nature of blended families and advice should be sought as to the best way to ensure your testamentary intentions are embodied and protected under your Will.
Contact the Shire Legal team if you have any questions.
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