Metis AM
If you’ve remarried and both you and your new spouse have children from a previous marriage, you are one of a growing number of blended families in the UK. In fact, blended families such as yours are becoming much more commonplace as divorce rates rise.
While having a blended family can bring a lot of joy, it can also present some unique challenges when it comes to estate planning.
You might be wondering how you can ensure that, after you pass away, your spouse, children, and stepchildren all receive the inheritance you’d like them to. Read on to discover the biggest risk you face when estate planning for blended families and some solutions to help you overcome this.
The biggest risk in estate planning is that your assets may not be shared according to your wishes
You might be considering writing a “mirror will” with your spouse. It’s so named because it means both you and your spouse have identical wills. This is a straightforward way of stating that, whichever one of you passes away first, the other will inherit their assets.
When you have a blended family, the assumption is that, if you pass away first and your spouse inherits your estate, they will make arrangements in their will for your children to inherit part of your estate.
However, what many people don’t realise is that your spouse is under no obligation to keep their will as it was written when you wrote the mirror wills together. As such, it’s completely possible that they could rewrite their will at a later date – if they remarry, for example – and exclude your children from inheriting any of the assets you wanted to pass on to them.
While it’s a scary thing to think about, it’s important to make provisions that prevent this scenario from happening.
There are plenty of solutions to ensure your estate plan is robust and fair
The good news is, there are plenty of solutions available that will help you to create a robust estate plan that allows you to record your wishes. Here are six things to think about that could make the process simpler for you and your family.
1. Draw up a will with the help of a professional
The first step in creating an estate plan is to write a will. This is where you will record your wishes about what will happen to your estate after you pass away.
If you die without a will in place, your assets could be distributed according to intestacy laws. This means that your wishes may not be honoured and can cause a lot of stress and tension for family members.
There are some criteria that need to be met for your will to be legal. They state that you must:
- Be over 18 years of age
- Be writing the will voluntarily
- Be of sound mind
- Make it in writing
- Sign it in the presence of two witnesses, both must be over 18
- Have it signed by your two witnesses, in your presence.
It’s usually a good idea to work with a solicitor on your will to ensure it complies with these regulations and has covered everything necessary to ensure the safe transfer of your assets to the right people.
2. Be specific about what you want each member of your family to inherit
When writing your will and creating your estate plan, specificity is key. If you write your will with clear instructions, there is much lower risk of your assets being distributed differently than you’d have wanted.
You might specify that you’d like each of your children to inherit a certain percentage of your estate, or a set amount as a lump sum. Alternatively, you may want a certain piece of property or assets to go to a child or your spouse. Stating this in your will could give you peace of mind that all of your loved ones will receive what you would like them to when the time comes.
3. Consider using a trust
A trust is a type of legal arrangement that can be helpful for estate planning. You can nominate assets to be owned by the trust rather than by an individual. This means that the asset will no longer be considered part of your estate and it will be held in trust until a date specified, at which time it will be released to the beneficiary.
A “life interest” trust is particularly popular for blended families because it allows the surviving spouse to live in your property after you pass away without it passing into their estate. If the family home is kept in a life interest trust, your spouse can be permitted to live in the home as long as they have a lifetime interest in it. After your spouse passes away, the property will legally be the property of your children.
This can help you to protect a portion of your estate from being lost – for example to bankruptcy, divorce (if the surviving spouse remarries), or care home fees – since the surviving spouse does not own the assets.
4. Hold your marital home as tenants in common
Another legal arrangement that could be helpful for you if you have a blended family is “tenants in common”. This means that you and your spouse each own 50% of the home (although the exact ratio can be different). In the event that one of you passes away, your stake passes into your estate and can be left to your beneficiaries rather than being transferred to the remaining spouse as the sole owner.
This is another option for ensuring that your children will receive an inheritance from your property, even if your spouse changes their will or remarries.
5. Communicate your wishes to your family, including your ex-spouse
Estate planning can be an uncomfortable topic, but telling your family what your wishes are and what you’ve put in place can be extremely helpful, especially when you have several different beneficiaries. Having a clear idea of what you want could help to make the arrangements much smoother and less stressful for your family when the time comes.
If possible, it might be helpful to speak to your ex-spouse about the decisions you’ve made. This may be particularly important if you have young children and you need to nominate a guardian in the event that you pass away before they turn 18.
Talking through your plans will also uncover any potential disagreements or resentment, so that they can be dealt with now instead of adding tension when it comes to carrying out your wishes later on.
6. Revisit your estate plan regularly
Your estate plan is likely to evolve over your lifetime, so don’t consider it finished and done once you’ve created it. It’s sensible to make time to review your estate plan regularly, and particularly after significant life events such as moving house or having a child or grandchild.
Note as well that if you get married or remarried, your will becomes null and void and you will need to create a new will.
Remember to consider the Inheritance Tax liabilities of your estate planning choices
While the above solutions are popular among people with blended families, it’s important to remember that certain pathways might make more of your estate liable for Inheritance Tax (IHT).
IHT is payable on any part of your estate that exceeds £325,000 after you pass away, but you can pass the entirety of your estate to your spouse without any IHT liability. When they pass away, the beneficiaries of the estate will only need to pay IHT on any assets that exceed the combined IHT threshold, which amounts to £650,000.
Even though tax liability needn’t be the sole reason for your estate plan decisions, it’s certainly an important consideration.
Get in touch
Estate planning can be complex regardless of your family situation. If you’d like someone to help you navigate the process and put plans in place so that you can have peace of mind about the future, we can help.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
