In the third and final part of this series on blended families, I look at different kinds of practical options that can be used for distributing and dealing with your assets.
Being in a blended family requires the partners to make the clearest possible arrangements in their wills to protect the future while they are still alive. The difficulty is to find the right balance between the new and old responsibilities of each partner.
Decisions around the type of Will structure and what to do with the assets that is most effective and appropriate will vary according to individual circumstances. What is essential is to obtain good legal advice before and during the process of structuring family assets.
Specific gifts of heirloom and family items
You should try and outline specific gifts in your Will such as any family heirlooms, sentimental personal items, photos, and videos. This will avoid arguments or, worse, family relationship breakdowns. Consideration of these items tends to be particularly important for blended families.
Guardianship of children
Of greater importance is to ensure you have properly thought about the appointment of guardians of any minor children. If there are children from prior relationships you must specify if the other parent is to have interaction with the guardian regarding the care of the children.
Consideration should also be given to detailing for guardians any issues that you consider important in providing care for the children. These could include education, health, religion, culture, where and with whom the child should reside, involvement of other family members in the children’s upbringing, general matters such as standard of living, pocket money, overseas travel, employment during minority, sport and other activities, and personal development.
Incapacity
Much of the discussion around options has been focussed on strategies to cope with the death, however, equally critical is dealing with the potential for incapacity. As such, it is prudent to review what is to occur if you lose the capacity to make decisions for yourself.
A Power of Attorney (POA) is a legal document appointing someone you choose to manage your financial affairs. If you have appointed an attorney, there must be an indication from you as to whether you would like them to have or inspect your Will. They may need to do this so as to ensure they don’t accidently dispose of an item which you have gifted under your Will. Doing so could expose them to unintended litigation consequences.
Inter vivos gift or loans forgiven on death
Inter vivos (Latin meaning: between the living) is a legal term referring to a transfer or gift made during one's lifetime, as opposed to a testamentary transfer (a gift that takes effect on death) under the subject of trust. By gifting your items during your life, you can minimise many issues that can arise after your death. Alternatively, wealth can be shared — with responsibility — by intra-family loans which can either be forgiven or controlled following death.
However, in NSW, an inter vivos gift may be designated as notional estate under Pt 3.3 of the Succession Act and be the subject of a family provision claim. Similarly, a loan forgiven on death is the property of the deceased at time of death and could also be designated as notional estate.
Life estate to the spouse
When you give a ‘life estate’, you are saying that a person can live in a property for the rest of their life but, under your Will, the property will actually be given to another person/s. This option is great for blended families because it provides for the surviving partner but also secures the home as a gift for other beneficiaries such as your biological children. However, one drawback is that it can tie up the estate for a potentially long time. It may also reduce the financial capacity of the surviving partner by splitting the estate and could lead to a family provision claim. In addition there may be Capital Gains Tax issues for the ultimate beneficiaries that would need to be considered.
Forming a company
Another way to structure assets is by using a company. When a company is incorporated and registered, it becomes a separate legal entity. The shareholders are effectively the owners of the company. To be registered as a company, a company must have at least one share, one shareholder and one director. Placing assets into a company can be an effective strategy because you don’t ‘give’ a company under a Will, you give the shares in the company. This way you can set up and manage who controls the company, that is, the assets.
Cautionary notes
Since every family is different, every family needs different advice and strategies. That’s why it’s always best to check with your trusted advisor before making major decisions or writing your own Will.
Patrick Coetsee | Solicitor