What estate planning options do I have for a blended family?

Firstly, what is a blended family?

A family is considered blended when one or both parents have children from a previous relationship. The parents may be married to each other or in a de facto relationship – and may or may not also have children together.

What the main risks are in a blended family scenario?

That the Will of the surviving party (made during the relationship) is later revoked, either through a subsequent marriage or by the surviving party making a new Will which benefits their own children and excludes the stepchildren.

Why is estate planning so important in a blended family scenario?

Blended families often have complex asset structures, including assets brought into the relationship and those acquired during the marriage or partnership. It’s crucial to clearly define ownership rights, especially for assets intended to provide for children from previous relationships.

Common circumstances where Family Provision Claims (‘FPC’) are made against a deceased person’s estate:

1. The children of a previous relationship are excluded from a Will (or do not receive enough provision) and the estate, or a significant share of the estate, is left to a second spouse or partner;
2. Children of a previous relationship receive the entire estate (or a significant share of the estate) and the surviving spouse or partner receives nothing or not enough; or
3. Children of a second relationship are provided for in a Will (i.e. where the other parent has died), but no provision or not enough provision is made for the children of a previous relationship.

What are some beneficial estate planning strategies that may be available to blended families?

• Mutual Will Agreements: a legal arrangement typically made between two people, often spouses or life partners, to ensure their shared estate plan is followed after both of them pass away. Both parties decide together on the distribution of their assets, specifying beneficiaries such as children, other family members. Once one party dies, the surviving party is legally bound by the terms of the mutual will and cannot change the agreed-upon distribution plan for the assets.
• Life Interest: a legal right to use and benefit from property or assets for the duration of a person’s lifetime. The life tenant cannot sell or transfer the property and their rights end upon their death. After the life tenant’s death, the property passes to another person or entity, as specified in the trust or will. Consider this common example, a couple, John and Mary, who have both been previously married with children.  Upon forming a relationship, they move into John’s marital home. If John passes away first, he would like Mary to remain in the family home for as long as she lives. Mary is responsible for maintaining the property and paying for any associated costs, such as property taxes, insurance, and repairs.  Mary cannot sell or transfer the ownership of the home. Her rights are limited to using and benefiting from the property during her lifetime. Once Mary passes away, John’s Will states that his children will inherit the property.
• Testamentary Trust Wills – A type of will that creates a trust upon the death of the person who made the will. It can be used to manage and distribute assets to beneficiaries, often under specific conditions such as reaching a certain age or achieving a milestone like graduation. It is also particularly helpful if a beneficiary is an “at risk” person, for example in a relationship at high risk of breakdown, director of a company, or experiencing drug and alcohol problems.  
• Use of life insurance, superannuation, or investment bonds.

These are just a few of the many tools that should be considered when estate planning for a blended family. Careful planning with a qualified lawyer, accountant and financial planner is needed to ensure that your wishes are honoured, your assets are protected, and your family is provided for in the future.

Republished with amendments with authority of Coulter Legal