Making sure you have an up-to-date will is a prudent move and for many it’s a straight forward document laying out an individual’s wishes for the dispersal of money and assets after death. However, for some, divorce and subsequent remarriage can create additional layers of complexity due to the creation of stepfamilies.
A stepfamily is a couple where there is at least one stepchild in the family, as a result of a previous relationship or marriage. Imagine a stepfamily where one or both couples have children from previous relationships and then they go on to have children together. Estate planning in such a scenario could get complicated so taking advice from a lawyer experienced in wills, trusts and probate is essential.
When planning your will it is important to account for the needs of all the children involved as well as your spouse. Will you divide your estate equally between everyone, or leave everything to your spouse and rely on their will to pass on benefits to the children? This seems a straightforward solution and has the benefit of the spousal exemption from inheritance tax. However, in such a scenario, the children may be resentful if they don’t see immediate benefit from the will. Perhaps you wish to leave all your assets to your own children, reasoning that your spouse will take care of their children through their own will. There are multiple possible permutations depending on your own wishes and the needs of your family.
In some cases involving step families, a tailored flexible life interest trust might be an appropriate solution. Putting a trust in a will is simply a clever way to manage your money and property when you want to generally benefit more than one person over a period of time. It might provide income and a right to occupy the family home for the spouse whilst safeguarding the eventual proceeds of the sale of trust property for the children after the surviving spouse dies. The most important element is to indicate your wishes in a carefully crafted letter to accompany your Will. This can allow a huge degree of flexibility to deal with all sorts of scenarios.
For cohabitees with children, a trust can offer the same kind of protection. No less than 49 per cent of children last year were born to unmarried parents . Many of those parents will also have children from a previous relationship/marriage that also form part of this new family unit. How does an individual cater for everyone? As cohabitees do not have any tax exemptions when assets pass to the surviving partner, for tax and protection reasons they may benefit from a type of trust arrangement called a discretionary trust. This can allow a surviving partner to benefit from the assets of the deceased one whilst ring-fencing assets for the ultimate benefit of children – all without an additional tax burden.
If you do decide to set up a trust, chose your trustees carefully in order to provide even-handed representation and take advice on your tax position. It is prudent to include an independent trustee to balance potential conflict between family members. It’s also important to leave behind a ‘letter of wishes’ making it clear how you want the trust to be administered. One also needs to consider how any other benefits such as pensions and insurance policies are to be dispersed
It’s worth noting that children may turn to litigation if they have not been adequately provided for under the terms of a will. Government figures show that, between 2008 and 2013, there was a 700 per cent increase in High Court actions that challenged wills. This is expensive for all concerned and good legal advice when you draw up your will can help minimise the risks of this happening. If you create a clear understanding of why your will is couched in particular terms there is less likely to to conflicts and disputes after your death.