Financial planning for blended families can be tricky for those who find themselves in this situation. When families combine, it adds an extra dimension to the family dynamic, and finances, in particular, can become blurred and difficult to differentiate. Over the years, there have been many cases in the public eye where blended celebrity families have fallen out over inheritance issues.
One famous case involved actress Elizabeth Hurley’s son Damian, who was denied a £180m share of his billionaire father’s will. The late Steve Bing had won a legal challenge in the US that excluded any children born out of wedlock.
What’s clear from these high-profile cases is that without proper estate planning in place, unexpected issues can arise, leaving people disinherited and disenchanted. Although a will can be challenged, there’s no guarantee that changes can be made. It’s better to plan ahead and make sure your wishes are clear to save any future heartache.
Inheritance planning for stepfamilies
A blended family, or stepfamily, is where two people come together with children from previous relationships. And with almost a third of all marriages in England and Wales being remarriages for at least one party and many with children involved, it’s no wonder the term is becoming more commonplace in modern society.
Combining your family with another can be a source of great joy with introducing stepchildren and new half-siblings to each other; the more, the merrier, as they say. But that’s not always the case, especially when it comes to inheritances later down the line.
Problematic cases include people remarrying and losing touch or falling out with their biological children. Other situations include people not getting on with their stepchildren and deciding they do not want them to inherit from their estate. Disinheritance is a common issue in blended families, whether by choice or lack of awareness or communication.
Financial planning for blended families requires careful inheritance planning, especially if two people marry or form a civil partnership, nullifying any previous wills. When people have children from multiple partners, this can lead to a very complex family structure. Having an up-to-date, legally binding will is important, but other crucial factors need to be considered due to the complexity of blended family structures.
Financial planning for blended families
Should you pass away first, you’ll likely want to ensure the comfort and welfare of your spouse first and foremost. However, you’ll also want to make sure it’s not at the expense of your children.
Below are some important points to help you protect your family and your assets:
- Own your house as ‘tenants in common’. ‘Joint tenants’ is the most common way of buying a house with someone. However, ‘tenancy in common’ allows you to keep separate and distinct shares in a jointly owned house, and the shares do not automatically go to the other owner on death. As a result, it creates greater clarity and flexibility, especially for those not conforming to a stereotypical family unit.
- A simple will is not enough. If you decide to leave everything to your new partner and you die before they do, there’s a chance your partner could cut your biological children out. They might decide to leave all their assets to their children or even a new spouse, should they remarry.
- A trust could ensure your assets go to your children. You could consider setting up a trust that still passes your assets to your spouse first, but the assets will then go to your children on your partner’s death. In this instance, you will need to choose a responsible and objective trustee to make key financial decisions after you pass away.
- Protect your pension. Pensions are not usually covered by your will and need separate consideration and documents to make sure they pass to the right people at the right time. A letter of wish or death benefit nomination form can help, and although not legally binding, it can save further heartache and confusion when you pass away. Different types of pensions have different death benefits, so ask a financial planner for help if you’re unsure what happens to your pensions when you die.
- Leave some responsibility and assets to your biological children. Instead of waiting for their stepmother or stepfather to pass away, you could ensure they benefit from your estate on your death immediately. This approach could also help avoid future confrontations between your spouse and children. Give authority to your children through Lasting Powers of Attorney, so they can make healthcare decisions if you lose the capacity.
None of us knows what the future holds. So, if you have remarried or formed a new civil partnership, you should plan for the possibility that your partner might remarry after you pass away. And while you are still alive, make sure you have the right protection in place. For example, a Lasting Powers of Attorney would help ensure you have chosen the people you want to represent your interests if you were suddenly hospitalised or lost mental capacity.
Review your will arrangements, consider setting up a will trust to help you manage your estate plans and complete an expression of wish letter/form for your pensions. These steps will reassure you that your money, property and assets will go to the people you choose. Our next article will look at ways to keep your pensions within the family so they are passed to the right people when you pass away.
If you need financial planning for your blended family, please get in touch with our independent financial planners.