Most of us appreciate the importance of making a Will and having an estate plan that sets out how we want to provide for our loved ones when we die.
If, like many Australians, you belong to a blended family, estate planning becomes more complex. You need to address the competing interests of children from past and present relationships. You also need to ensure your current partner is provided for.
Below are some estate planning considerations for members of a blended family. This information is general only. We recommend you obtain professional advice tailored to your circumstances before taking any action.
Make a family tree and identify potential issues
Because blended families can be complex, it helps to create a family tree. This identifies immediate family members, former spouses, children from past and present relationships (including biological, adopted and step-children), and anyone else who is or has been financially dependent on the Will-maker.
Making a family tree helps you to:
- consider the testamentary wishes of each partner and identify who they want to benefit from the estate
- identify potential disputes and family provision claims and reduce risk where possible
- recognise people who may have a moral claim on the estate
Look at your major assets
Real estate and superannuation are often the most significant assets in an estate. Understanding how they are treated helps with planning.
Real estate
If you hold real estate as joint tenants, survivorship applies. This means your share automatically transfers to the surviving owner when you die, regardless of your Will.
If this is not your intention, you and your partner may consider severing the joint tenancy. You can instead hold the property as tenants in common. This allows each of you to leave your share in your Will.
Your lawyer can help you sever a joint tenancy and explain the legal consequences.
Superannuation
Many people assume superannuation is distributed under their Will. This is not always the case.
Death benefits, including superannuation and any life insurance, are paid to a dependant as determined by the trustee. They may also be paid under a Binding Death Benefit Nomination (BDBN).
A dependant includes:
- a spouse or de facto partner (same or opposite sex)
- a person in an interdependency relationship
- a child of any age
- a person financially dependent on the member
In a blended family, you may direct benefits to children to ensure they receive an inheritance. However, you should also consider whether enough funds remain for your partner. You should also consider tax implications.
Legal or financial advice is recommended.
Consider different types of Wills
A simple Will often leaves everything to a surviving partner and then to children. This structure may not suit blended families.
Different types of Wills can help address these issues. Your lawyer can advise what suits your situation.
Testamentary trust
A testamentary trust is created through a Will and comes into effect after death. It allows you to separate assets into different trusts for beneficiaries, such as children.
This structure can protect assets and may offer tax advantages. However, it is complex and requires ongoing management. You should ensure the benefits outweigh the costs.
Mutual Wills Agreement
A Mutual Wills Agreement is where both partners agree on how their assets will be distributed. This is reflected in reciprocal Wills.
It also creates a binding agreement that prevents either party from changing their Will after the other dies.
The surviving partner must hold assets on trust for the named beneficiaries.
Conclusion
Effective estate planning takes time and careful thought. Every family is different, and there is no single solution.
Speaking with an estate planning lawyer helps identify risks and develop strategies to protect your intended beneficiaries.
If you or someone you know wants more information or needs help or advice, please contact us on (03) 9422 5439 or email [email protected].