Options for blended families

Blended families—those with spouses or partners who have children from previous relationships—are increasingly common. However, when it comes to estate planning, these family dynamics can introduce a host of complexities and potential conflicts. Succession planning in such situations requires a delicate balance between protecting the surviving spouse and ensuring the interests of biological children are safeguarded. 

If you find yourself overwhelmed by these challenges, you’re not alone. Estate planning for blended families can be complicated, but it is essential to ensure that your wishes are honored after you pass away. Here are several strategies and options to consider when creating a will or succession plan that addresses the unique needs of a blended family. 

1. Direct Gifts to Children and Surviving Spouse 

One approach for blended families is to make specific gifts directly to children and the surviving spouse in the will. For example, a portion of the estate can be allocated to children from a previous relationship, while another portion is left to the surviving spouse. This method helps ensure that children receive their inheritance while still providing for the spouse. 

However, the effectiveness of this strategy depends on the size of the estate and the assets involved. If the estate is small and most assets are left to children, the surviving spouse may lack sufficient resources for their maintenance and support. If the spouse inherits the home but no liquid assets to maintain it, this can cause significant issues. It is crucial to thoroughly review assets and liabilities to ensure a fair and practical distribution. 

2. Tenants in Common and Right to Occupy 

Another common option is to convert jointly owned property to a "tenants in common" arrangement. In this scenario, each partner owns a distinct share of the property, which can be passed on to their children upon their death. The will can then grant the surviving spouse the right to occupy the home for a specified period or until their death. 

This approach offers the best of both worlds: the surviving spouse can continue living in the home, while children from a previous relationship are guaranteed their inheritance of the property. However, there are some potential pitfalls. For instance, if the surviving spouse needs to move into a high-care situation, the inability to liquidate the property may pose problems. Careful planning and contingencies are essential to address these issues. 

3. Life Insurance for Children 

A separate life insurance policy payable to children from a previous relationship can be an effective strategy to ensure they receive an inheritance. This provides peace of mind that children will receive a specific sum upon your death, separate from the remaining estate allocated to the surviving spouse. 

While life insurance can offer clarity and certainty, it can be costly, especially for older individuals or those with health conditions. It's also important to ensure that the insurance policy is not tied up in superannuation, which could complicate the payout process and impact the tax liabilities for non-dependent children. 

4. Superannuation Nominations 

For some, nominating a portion of their superannuation to be paid directly to their children is an option worth considering. However, this is less common due to the tax implications for non-dependent adult children, who may have to pay a significant portion of their inheritance in taxes. Careful consideration is needed to weigh the benefits and drawbacks of this approach. 

5. Mutual Wills 

Mutual wills are another option, but they come with significant caveats. In this arrangement, both partners create mirrored wills and contractually agree not to change them. If one spouse alters their will after the other passes away, the beneficiaries can pursue a claim for breach of contract. 

While mutual wills might seem like a solution to protect the interests of children from a previous marriage, they can become a legal and emotional burden. If one partner lives for many years after the other passes away, the inability to adapt their will to changing circumstances can lead to significant complications. Many legal professionals, including myself, often recommend avoiding mutual wills due to their rigidity and potential for disputes. 

6. Flexibility and Regular Updates 

One of the most important pieces of advice I give to clients in blended family situations is to be prepared for regular reviews and updates to their wills. Family dynamics, financial situations, and personal circumstances change over time, especially in blended families. What may seem like a fair arrangement today could lead to disputes or unintended consequences in the future. 

I recommend that clients with blended families revisit their estate plans every three to five years. Regular updates help ensure that your will continues to reflect your wishes and adapt to any changes in relationships, health, or financial status. 

Craft a Thoughtful and Secure Estate Plan for Your Blended Family 

If you are part of a blended family and find yourself struggling to create a fair and effective estate plan, it's time to seek professional advice. At Vicca Law, we specialise in estate planning for complex family dynamics, helping you balance the needs of your spouse and children. Visit www.viccalaw.com.au to book a free consultation, or email me directly at lidia@viccalaw.com.au. 

Let’s work together to create a plan that gives you peace of mind, knowing that your wishes will be respected and your loved ones will be taken care of according to your intentions. Don't leave it to chance—take control of your legacy today.