Russell Kennedy offers expertise to provide practical and effective solutions to the particular estate planning challenges faced by clients with blended families.
The Estate Planning Challenge
People entering a second or subsequent domestic relationship will often wish to keep some of their existing assets separate. They might want to ensure that, when they die, such assets pass to their own children.
Particular estate planning strategies, discussed below, can help to achieve this.
However, if the situations of the current partner and all children or dependants are not taken into account, estate litigation is the likely outcome.
In some circumstances, even a former stepchild can have a claim on the estate under Part IV of the Administration and Probate Act 1958 (Vic).
The key is to properly consider and address all competing claims for maintenance and support.
Specific and personalised advice should be taken in every case, to minimise the likelihood of dispute.
Estate Planning Strategies
Clients may wish to consider the following estate planning strategies in considering how to adequately provide for their current spouse or partner and for their children.
Adequate provision being made to all beneficiaries under the Will, where the value of the estate permits this luxury.
Superannuation nominations in favour of the second spouse/partner or other current dependants, to provide financial support
Life Insurance policies taken out in favour of particular beneficiaries.
Life Interests to permit the surviving partner:
to have the use of a particular property as their place of residence
to derive income from part or all of the residuary estate.
The objective is to ensure that a property or the residuary estate will eventually pass to the children of the Will maker, on the death of the partner.
Under a traditional life interest, the surviving partner does not have access to capital. Trustee powers to advance income and capital of the residuary estate to properly support the partner and giving the right to sell and use the proceeds to provide appropriate accommodation to the life tenant, may be needed.
Tensions frequently arise between the partner and the children regarding the maintenance of any real property and the investment of the residuary estate to provide income and capital growth, meaning the selection of competent Trustees is of critical importance, where a life interest is appropriate.
5. Mutual Will Agreements made by both partners, each agreeing to leave a Will that makes appropriate provision for the children of both partners.
A Mutual Will Agreement becomes more relevant and useful, the more merged the assets of the couple become, over time. On the death of the first partner, the survivor inherits, but is bound by the terms of the Mutual Will Agreement to maintain a Will which is in favour of the children of the deceased partner to a specified extent. A constructive trust arises over the assets then vested in the survivor, which can be traced if they are disposed of contrary to the terms of the Mutual Will.
On the death of the surviving partner, that person’s estate passes to the respective children (or other beneficiaries) of each partner as agreed in the Mutual Will. The main weakness of the Mutual Wills approach, is that, although the agreement may contain commitments not to diminish the estate by gifting, the estate will be in the sole control of the surviving partner and may be run down in value over a long or lavishly lived life – note however, that this factor will operate to the detriment of the beneficiaries of both partners.
During their mutual lifetime, the partners can revoke the agreement by mutual consent, if at any time it no longer reflects their needs and wishes. Alternatively, by prior agreement and subject to both partners remaining capable, either partner can terminate the Agreement by revoking their Will and giving appropriate notice to the other partner.
We have assisted many couples in second and subsequent relationships, with the challenging project of developing Wills to suit the needs of both them and the children or step-children of the family.
We are also expert advisers in relation to Estate disputes affecting blended families where Estate Planning is incomplete or has been unsuccessful. We have substantial experience in acting in such matters for all of the surviving spouse, the executors or children.
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