Trusts and Blended Families: Protecting Your Partner Without Leaving Your Children Exposed
Estate planning is rarely simple, but it can be particularly sensitive for blended families.
You may want to make sure your spouse or partner is financially secure if you pass away first. At the same time, you may also want to protect an inheritance for children from a previous relationship.
These intentions are both reasonable. However, they can sometimes be difficult to achieve with a simple will that leaves everything to one person outright.
For many blended families, it’s important to plan for what could happen later, after the first person has passed away and family circumstances change.
A carefully prepared estate plan, which may include a testamentary trust, can help provide for a surviving partner while still preserving assets for children in the longer term.
The Risk of Leaving Everything Outright to Your Partner
A common approach between spouses is to leave everything to each other, with the expectation that the surviving spouse will then leave the remaining assets to the children.
In a blended family, this can create risk.
Once assets are left outright to a surviving partner, that person generally owns and controls them. They may be able to change their will, sell assets, gift money, enter a new relationship or make financial decisions that differ from what the first person intended.
This does not always happen because of conflict or bad faith. Life simply changes. A surviving partner may later remarry, need aged care, experience financial pressure, assist their own children, or make a new will based on their circumstances at that time.
The result can be that the children of the first person to pass away receive less than expected, or in some cases, nothing at all.
For example, a person in a second marriage may own a home and investments they built up before that relationship. They may want their current spouse to continue living comfortably after their death but ultimately want those assets to pass to their children from their first marriage.
If everything is left directly to the spouse, that may provide immediate security. However, it may not protect the children’s longer-term inheritance.
This is where more tailored estate planning becomes important.
How a Testamentary Trust May Assist
A testamentary trust is a trust created by a will. It comes into effect after the will-maker dies.
Instead of assets being transferred directly to a beneficiary, they are held and managed by a trustee according to the terms of the will.
In the context of a blended family, a testamentary trust may allow the will-maker to provide financial support to a surviving spouse or partner, while also setting out what should happen to the remaining assets in the future.
For instance, the trust may allow the surviving partner to receive income from the trust, live in a property owned by the trust, or access funds for appropriate living, medical or accommodation needs. The will can also set out when the remaining assets are to pass to the will-maker’s children, or how they are to be managed for their benefit.
This type of structure can provide more control than an outright gift.
It can also help reduce uncertainty by making the will-maker’s intentions clearer. Rather than relying on an informal understanding between family members, the will can set out how competing needs are to be managed.
Providing Security Without Giving Away All Control
One of the most important questions in a blended family estate plan is how much control the surviving partner should have.
In some families, it may be appropriate for the surviving partner to have significant control and flexibility. In others, that may create concern for children from an earlier relationship, particularly if the assets were accumulated before the current relationship began.
The trustee of a testamentary trust has an important role. The trustee manages the assets and makes decisions within the powers given by the will.
If the surviving partner is the sole trustee, they may have practical control over the trust assets. That may be suitable in some circumstances, but not in others.
Another option may be to appoint the surviving partner together with another trusted person, such as an adult child, independent adviser or professional trustee. This can provide a level of oversight and help balance the interests of the surviving partner and the children.
There is no single correct approach. The right structure depends on the family relationships, the assets involved, and the level of trust and independence required.
The Family Home Often Needs Special Attention
The family home is often the most emotionally and financially significant asset in a blended family estate plan.
A surviving partner may need somewhere secure to live. At the same time, the will-maker’s children may see the home as part of their future inheritance, particularly if it was owned before the later relationship.
A will can be drafted to give a surviving partner a right to live in the home for a period of time, or for the rest of their life. This is sometimes known as a right of residence or life interest.
However, the wording needs to be carefully considered.
For example, what happens if the surviving partner wants to downsize? What if they enter aged care? Who pays rates, insurance, repairs and maintenance? Can the property be sold and replaced with another property? What happens if the surviving partner enters a new relationship?
These questions can feel uncomfortable but addressing them early can prevent significant disputes later.
A well-drafted estate plan should say who receives the home, and how the home is to be used, maintained and dealt with over time.
Stepchildren and Queensland Succession Law
Blended families should also be careful not to make assumptions about who will inherit, or who may be able to make a claim.
In Queensland, stepchildren are not treated as beneficiaries under the intestacy rules if a person dies without a valid will. This means a stepchild may receive nothing unless they are specifically provided for, or unless another legal basis applies.
However, stepchildren may still have rights in other circumstances.
Under Queensland succession law, a stepchild may be eligible to bring a family provision application if the relevant legal requirements are met. A family provision application is a claim that the deceased person failed to make adequate provision for an eligible person’s proper maintenance and support.
This does not mean every claim will succeed. The Court considers many factors, including the relationship, the applicant’s financial position, the size of the estate, the needs of other beneficiaries and the circumstances of the deceased person.
The important point is that blended family estate planning should not rely on assumptions. A person may not automatically inherit under intestacy but may still be able to challenge an estate in certain circumstances.
This is one reason it is so important to obtain advice before preparing or updating a will.
A Trust Is Not a Complete Answer on Its Own
A testamentary trust can be a very useful tool, but it is not a guarantee that an estate will avoid challenge.
In Queensland, eligible spouses, children and dependants may be able to make a family provision application if they believe adequate provision has not been made for them.
This is particularly relevant in blended families, where there may be competing expectations between a current spouse, children from an earlier relationship, stepchildren and other dependants.
A trust that is designed only to restrict access to assets, without properly considering the financial needs of eligible family members, may increase the risk of a dispute rather than reduce it.
Good estate planning is about creating a structure that is legally sound, practical and fair in the circumstances.
Your Will May Not Control Every Asset
Another common issue in blended family estate planning is that not every asset necessarily passes under a will.
Jointly owned property may pass automatically to the surviving joint owner. Superannuation may be paid according to the rules of the superannuation fund and any valid death benefit nomination. Life insurance may be paid directly to a nominated beneficiary. Assets held in a family trust are owned by the trustee, not by the individual personally.
This means a well drafted will may still fail to achieve the intended result if the broader asset structure has not been reviewed.
For example, a person may intend for their children to receive part of their estate through a testamentary trust, but most of their wealth may sit in jointly owned property or superannuation. If those assets pass outside the will, the trust may have little practical effect.
For blended families, the estate plan should consider the whole picture. This includes the will, superannuation, life insurance, jointly owned assets, family trusts, companies and any existing loan or business arrangements.
Incapacity Planning Is Also Important
Estate planning covers more than what happens after death. Blended families should also consider what happens if a person loses capacity during their lifetime.
An enduring power of attorney allows someone else to make financial and personal decisions if you are unable to make those decisions yourself. This can be very important, but it can also create tension if there are competing family interests.
For example, should a spouse be appointed alone? Should an adult child also be appointed? What happens if the spouse and children disagree? Should financial decisions and personal or health decisions be handled by different people?
These decisions should be made carefully. The person appointed may have significant control over assets, financial decisions and personal arrangements during a person’s lifetime.
In a blended family, choosing the right attorney can be just as important as choosing the right executor or trustee.
The Best Plan Is Usually a Tailored One
There is no standard estate plan that suits every blended family.
For some families, a testamentary trust may be the most appropriate way to provide structure, flexibility and asset protection. For others, the plan may involve a right of residence, life interest, direct gifts, superannuation nominations, life insurance, mutual will arrangements or changes to how assets are owned.
Often, the most effective solution is a combination of strategies.
The goal is not always to treat every person in exactly the same way. In many blended families, equal treatment may not reflect the history of the relationship, the source of the assets or the different financial needs of each person.
The goal is to make a plan that is clear, legally effective and carefully matched to your family circumstances.
Speak With a Queensland Succession Lawyer
Blended family estate planning requires careful thought. It is not enough to prepare a simple will and hope everyone will do the right thing later.
A properly prepared plan can help provide for your partner, protect your children’s inheritance and reduce the likelihood of confusion or dispute.
At Bradley & Bray, our succession lawyers assist clients across Queensland with wills, testamentary trusts, enduring powers of attorney, estate planning and estate disputes.
If you are part of a blended family, or your circumstances have changed due to a new relationship, separation, divorce or remarriage, it may be time to review your estate plan.
Getting advice now can help ensure your wishes are clearly documented and your loved ones are properly protected.
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
