Wills and Estates
A tricky path to navigate: Estate planning for blended families
Blended families are becoming increasingly common in Australia, as couples separate or dissolve and move on to form new families.
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As such, it’s a relationship dynamic that estate planning lawyers need to be well and truly across.
We spoke to Jonathon Naef, co-founder of Balance Family Law and College alumnus, to get his insights on overcoming the key challenges in estate planning for blended families.
More people, more complexity
Estate planning for families is a delicate process that calls for a lot of thought. Even more so when it comes to blended families – because there are even more people to consider.
So what exactly is a blended family?
A family is considered blended when one or both parents have children from a previous relationship. The parents may be married to each other or in a de facto relationship – and may or may not also have children together.
And because children from previous relationships are involved, estate planning for blended families is typically more complex.
Some scenarios for blended families include:
- A parent wanting to ensure that the children from their previous relationship will benefit equally from their estate when they pass away.
- A parent wanting to leave everything to their current partner, but when the partner dies, the estate should go to all their children, including those from their previous relationship.
- A situation where both parents have children from previous relationships, but one has only one child while the other has three. So they want their children to benefit from the estate in different proportions.
Key challenges to work through
Because blended families involve complex relationship dynamics, you will need to consider many issues when working on their estate plan.
Jonathon Naef, a legal practitioner who specialises in estate planning, flags some of the challenges that may arise.
“Some couples want to include all their children in the estate plan – from current and previous relationships. Others want to exclude some children. And in certain cases, everyone is included but they get different proportions.”
A couple’s respective estate plans may also not align with each other – which could cause a disconnect in outcome expectations.
“The ideal situation would be for both spouses to be aware of what one another is planning for their estate,” Jonathon says. “But that doesn’t always happen. So for example, one parent may expect to receive their partner’s estate. But the partner has instead decided to bypass them and benefit only their children.”
Other issues you may need to work through include:
- Timing and expectations: Does your client want to provide only for the surviving spouse upon their death, and then distribute the estate to the children after the surviving spouse passes away? Or are they not giving anything to the partner, only to the children?
- Testamentary trusts: Do they need to set up testamentary trusts to ensure all family members are taken care of while the estate receives some protection? And if so, who will control the trust?
- Relationship health and quality: Does your client’s new or current partner get along with their children from a previous relationship? And if not, will their current partner be likely to try and cut the children out from benefiting from their estate? Will there be a risk of family provisions claims?
- Superannuation and life insurance: Because these proceeds don’t automatically form a part of the estate, what strategies should you put in place to deal with these interests? Should they be brought into the estate? Or does your client want to leave them out and nominate someone as beneficiary of these interests? Are there any notional estate issues to consider?
- Joint assets: Joint assets may or may not form part of the estate – depending on how it’s owned. So it’s important to determine how assets are owned, so you can advise your client on what’s in and out of the estate. And whether they want to bring any of their joint assets into the estate.
Minimise potential for conflict with clarity
With so many parties to consider, the potential for family conflict always exists.
When some members don’t feel like they have been adequately provided for, or if they don’t understand why certain things were done in a certain way, they may challenge the will.
But there are things you can do during the estate planning to reduce the risk of a future dispute.
Jonathon agrees – adding that it’s important to push for clarity.
“When working with blended families, lawyers need to ask a lot of questions. It’s important to know the intentions behind the estate plans, what happens when both parents pass away, and where they want the estate to ultimately go.”
With stepchildren and stepparents in the mix, everything in the estate plan must be structured as clearly as possible to reduce confusion and doubt.
Some questions you might need to ask to determine your client’s goals:
- How do you want your current partner and children to benefit from the estate?
- If you want your partner to benefit from your estate now, who do you want to benefit once they pass away?
- If you’re benefiting your children (initially or when your partner dies), how do you want the estate to be distributed among those children?
- Do you want the children from your previous relationship to benefit from the estate?
- Do you want them to benefit the same amount as the children from your current relationship or in different proportions? If different, what are the reasons?
Encourage transparency throughout the process
Another way to minimise conflict is to be transparent about the intentions of the estate.
It’s not necessary for your client to inform their family about their plans. But it is highly recommended – especially if the will might cause unhappiness and disagreement.
Jonathon puts it this way: “If the client knows that someone is not going to be happy about their estate plan, it’s worth trying to work through the issues now. Talk to the family about their intentions and what to expect, then explain why they’re making those decisions.”
Although the family members may still not be happy about the plan, at least they are aware of it and can be prepared for it – and not be in for a rude shock at the end.
Jonathon warns that there may be a higher chance of dispute when family members are caught unawares. “In many situations, it’s really the shock that causes family members to decide to contest the will.”
More tips to safeguard the estate plan
There are two more things to be aware of when drafting an effective estate plan to reduce the chances of dispute:
- Supportive documents: Pre-nuptial or binding financial agreements can be useful for blended families. In addition to spelling out what happens if they separate, these documents can also provide clarity around what they want their estate plan to achieve. If someone wants to challenge the will, these documents can be used as evidence to support your client’s intentions – and determine whether the family provision claim will be successful.
- Eligibility to contest: Just because someone might want to challenge estate distributions, doesn’t mean they can. For example, in some states, stepchildren are not eligible to challenge wills. So be sure you’re aware of the variable factors that determine if someone is eligible to bring a family provision application, so you can advise clients accordingly.
Ready to up your game in estate planning for blended families?
The College of Law is offering a half-day CPD course on estate planning for blended families on 30 March 2022.
It covers everything you need to know to construct an effective estate plan, including strategies, risks to look out for, non-estate assets and discretionary trusts.