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His, hers, or theirs?

18 October 2018

Blended families can create complex financial planning issues which, left unresolved, can mean wealth fails to pass to the intended recipients.

The ‘blended’ family – a relationship where one or both parties have children from previous relationships – is now commonplace. Indeed, research shows that nearly a third of all couples bringing up children have a child from an earlier relationship in their family1. Whilst such arrangements are very often harmonious, they can add layers of complexity to relationships, and financial conflict between family members – whether related by blood or otherwise – is not uncommon.

Tensions often surface when a parent dies. Even if a parent has made every effort to be even-handed during their lifetime, they could leave loved ones financially disadvantaged after their death. The problems can be more acute in blended families, and tensions may further grow if family members feel they haven’t been properly provided for.

Leaving it to chance

Sadly, many parents and grandparents either put off their estate planning until it’s too late, or simply assume their estate will automatically go to the right individuals when they die. Regrettably, this is not always the case and some people are only compelled to write a Will* after they have gone through the financial and emotional problems created by their spouse or partner dying intestate.

Dying intestate can prove problematic for even the most nuclear of families, but when there are children from different relationships and step-children too, then the difficulties for family members can multiply rapidly.

The rules of intestacy mean that any assets in your sole name (up to the value of £250,000) will pass to your spouse, plus any personal possessions (regardless of value). So, if you are on your second or third marriage and die intestate, all of the assets passing outright to your new spouse could ultimately end up passing to his/her relatives (perhaps their children from a previous marriage) instead of your own children. Even if the wealth does filter through to your own children, they may have to wait until the death of your surviving spouse/partner before they inherit it, by which time the assets of the estate may have diminished.

More than willing

It’s easy to see why careful estate planning is vital in order to minimise conflict. Making or updating a Will is particularly important, and a good first practical step. However, individuals often wish to maintain an extra layer of control over who inherits and when assets are received, and this is where trusts* come in.

A trust – whether contained within a Will or separately – allows you to choose how your assets are used, when they can be received and even when they can’t be. Trusts can also ensure that assets are given the time and potential to grow rather than being spent. Setting one up can also help families to avoid the delays in obtaining probate – the legal process involved in dealing with the assets of a person who has died.  

Moreover, a trust can be a very useful method of striking a balance between your desire to provide for your spouse or partner whilst protecting assets for your children from a previous relationship. For instance, a trust may distribute assets to the children and include provisions for a surviving spouse.

There are various trust structures that can be used to give you the assurance and peace of mind that your chosen beneficiaries will receive what you wish them to and cannot be excluded by events or actions that are taken after your death.

Heir care

Estate planning for blended families can be very complicated with many issues to consider. Whether using Wills, trusts or other means of transfer, a financial adviser can assist you in preparing a tailor-made solution to your estate planning objectives to ensure that your affairs are structured in such a way that provides for all of your intended family members in a secure and tax efficient manner.

Finally, you should take some time to consider who will control your assets after you have passed away. You could choose a family member or a trusted friend to administer your estate, but because of the dynamics involved in blended families, it may be preferable to appoint a professional so that the role may be carried out with impartiality.

Planning ahead with all of this in mind can help you to leave more for your loved ones, and remove much of the burden and stress they can encounter in dealing with your estate.

 

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief generally depends on individual circumstances.

*Will writing involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills and Trusts are not regulated by the Financial Conduct Authority.

1Aviva, Family Finance report, 2014

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