Welcome to Part 2 of my series where I discuss some estate planning ideas you might find especially helpful if you are in a blended family. I’m sure you will find this information useful and if you can’t wait for Part 3 of my series, please call or email me and we can sit down together for a no-obligation discussion regarding your personal situation.
Your Assets
Firstly, you need to know how your assets are structured. Like capital and financial structure, asset structure is important.
Your structure will greatly impact how the assets are distributed. For most, the main asset is their home. Properties can be owned solely, jointly, or as tenants in common.
Joint ownership means that if one party dies the home passes directly to the surviving owner. The issue many people fail to consider is: what happens to the property if both joint tenants don’t survive?
Ownership as tenants in common means that the share of the house owned by the deceased party will be dealt with according to his or her Will. If there is no Will then it will be according to the rules of intestacy.
Some couples with children from previous relationships prefer to keep their assets separate (e.g. keeping bank accounts in separate names); while others prefer to own assets jointly, or own some assets jointly and keep some separate.
Strategies to Consider
Some of the elements in estate planning that you should know about in the context of blended families are:
Testamentary Trusts
Having a Testamentary Trust can offer significant flexibility. They provide asset protection and tax minimisation for those who benefit from your estate. A Trust is a structure whereby assets are managed by one person (or persons) i.e. a Trustee, for the benefit of others (the beneficiary or beneficiaries).
Under a Testamentary Trust the Trustee has the discretion, or choice, to distribute capital and income between beneficiaries nominated in your will. If an intended beneficiary is in a high risk profession or business where negligence claims are likely, a Testamentary Trust will protect the inheritance.
If one of your intended beneficiaries is either a spendthrift or has gambling/drug addictions, you can provide for such a beneficiary through a Trust. This ensures that his/her share of your estate is kept intact.
A Testamentary Trust is useful for families who wish to provide for their spouse but are concerned that the spouse may remarry and divert the family assets to the new family.
Joint Tenancies
As mentioned above, upon the death of a joint tenant, any assets held in joint tenancy pass to the surviving joint tenant. This applies equally to bank accounts as it does to real property.
Conversely if assets are held as tenants in common, the tenant’s share of the asset passes to that person’s estate upon their death. Obviously this is a critical issue to consider in a blended family situation.
In some cases it may be necessary to consider severing joint tenancies in order to achieve what you want. On the other hand, creating joint tenancies can provide an excellent strategy to transfer property to an intended beneficiary, particularly if it is expected that the estate will be contested.
The difficulty with the use of joint tenancies in estate planning is that there is no certainty that the intended beneficiary will survive you. If the intended beneficiary pre-deceases (or is deemed to pre-decease) you then the asset will once again form part of your estate.
Superannuation
For many, superannuation is one of our major assets, if not during our life time, then upon death. In addition often life insurances are held by people within their superannuation funds. This means that pay-outs are often significant.
You should have a Binding Death Nomination in place with your super fund. This means that the trustee of the super fund will consider who you have chosen to give the money to. However, Binding Nominations don’t actually ‘bind’ a trustee of a fund. In addition you can only select from a class of persons to give the money to. You can bring your super into your estate but to allow that requires specific wording in your Will.
Life Insurance
Life insurances can be an excellent tool by which significant assets can be left directly to intended beneficiaries without affecting the remaining estate plan. A person can establish one or more life insurance policies and nominate the intended beneficiaries to take the benefits under those policies.
Mutual Wills
Mutual Wills are made by two persons under an agreement that neither will change their Will during their lifetimes without the approval of the other party. Upon and from the death of the first party (if that party has complied with the terms of the agreement), the survivor is bound irrevocably by the agreement.
Mutual Wills are a fabulous way to ensure that the partner who survives can live in a home comfortably in circumstances where the home is gifted to your children. It means that the surviving person cannot change their Will even if they re-partner. This provides certainty around the giving of gifts to children if you are in a second relationship for example.