10 smart estate planning strategies to help protect blended families

Apr 16, 2023
Source: Getty

With divorce rates on the uptick according to the Australian Bureau of Statistics, it’s no surprise that today’s families can be a mix of biological and non-biological parents and children, step-parents, step-children, half-siblings and even grandparents.

Where does that leave the assortment of beneficiaries when spouses and partners pass away? And how can you ensure as a parent or step-parent that your estate will be passed on fairly and equitably amongst the people you care for? 

Dividing the assets – who stands to lose?

Most people don’t realise that once they die, their surviving partner can do what they like with any assets they are left, especially if everything is left to them, as is common in most wills.

Sadly, one of the most common situations we see is where children from a first marriage miss out when assets are divided. A classic example is when people get older and require aged care facilities. Often the only alternative is to sell the family home to finance the move. As the home is often a core estate asset, selling it has the potential to rob future beneficiaries such as step-children, or children from a previous relationship, of a vital share of an asset when the surviving spouse passes away. 

The same goes for physical or financial gifts, which can be lost, sold, or even destroyed long before they get to the intended beneficiaries.

Estate planning strategies for blended families

There are a number of ways that can help will makers in blended families achieve what they intended for their beneficiaries and avoid expensive family conflicts at the same time. There are several strategies and we’ve highlighted ten:

  1. Clearly outline your wishes around providing for your spouse and any children in your estate plan. This normally entails updating the will to ensure different scenarios are covered, and all beneficiaries are protected. This will avoid creating a situation where some parties feel unfairly treated or excluded.
  2. If you have sufficient assets, you may wish to make provisions for your children up front, so they receive some or all of their intended inheritance at the time you die. Or, if your spouse has enough assets of their own, you could bequeath your spouse a set amount and leave everything else to your children.
  3. Certain trust structures can be considered, where the surviving spouse gets the use and enjoyment of assets such as property while they are alive, and then the assets within the trust pass to specified beneficiaries, such as adult children or grandchildren.
  4. Create a mutual wills agreement that involves wills made by spouses at the same time, together with a legally binding contract not to change their respective wills without the other’s consent. That said, mutual wills are not a popular option in Australia – because striking the right balance for these can be a challenge. If they are too prescriptive about what can and can’t be done, they can potentially cause financial difficulties for the surviving partner. On the flip side, if they are too general the surviving spouse could potentially spend all the capital within the estate before it passes to any children.
  5. Nominate a neutral party or an independent trustee company to act as executor. This can often help dodge unnecessary conflict during the administration of the estate and avoid delays to the will being carried out.
  6. Try not to be specific about gifts in a will, such as a particular house. Instead, nominate a beneficiary receiving a percentage of an estate rather than specific assets.
  7. If there is a chance that an asset might not exist when the will-maker dies, think about having a substitute gift. For example, you can nominate an alternative asset that can be sold as a substitute if the original asset is sold.
  8. Rather than being joint tenants where a property automatically goes to the surviving tenant if the other tenant dies, a husband and wife might consider holding property as tenants in common, which means two or more people co-own property in agreed shares. The surviving spouse gets to use and benefit from the asset as long as they want but if it is sold, their interest in the property can be transferred to the designated estate beneficiaries.
  9. Involve your intended power of attorney to ensure that any instructions in the will are clear and specific. They can apply to the court if necessary to make sure the gift to the intended beneficiary does not fail.
  10. Really think through your goals and objectives with regard to providing for everyone in your family tree, including your spouse, biological children and step-children.  Then seek out the right advice from an estate planning specialist, who can help you to document your wishes and review your strategy if your family’s circumstances change.

Be aware that different rules apply in different states. For example, in South Australia, a beneficiary can apply to the Supreme Court if they have missed out on an asset or its proceeds, while in NSW and Victoria, they still have an interest if it’s managed by the will makers’ enduring attorney or financial manager.

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