Blended families and inheritance disputes

Blended families refer to families where two partners, each bringing their own children from previous relationships, come together in a new relationship, whether it's through marriage, civil partnership, or cohabitation, to create a unified family unit.

With the rise of blended families, couples are finding it more crucial to plan for the future. They must consider how to provide for their partner in case of their passing, while also ensuring that their children inherit from their estate.

Experts Andrew Hornsby and Martin Banwell delve into the topic of contentious probate and personal disputes in this article. They advise on the best steps to prevent inheritance conflicts within blended families and share other insights that blended families should be aware of.

Why is inheritance more difficult in blended families? 

In England and Wales, handling inheritance in blended families can be more complex due to the principle of testamentary freedom. Essentially, this allows individuals to draft a Will directing their estate to anyone of their choosing, without any legal requirement to support family members such as spouses, children, or even charitable organisations like local animal shelters. Additionally, the Intestacy rules (the rules which govern your Estate if die without a Will) do not account for non-blood relatives, such as unmarried partners and stepchildren.

If certain specified individuals who have been excluded from inheritance, whether through a Will or the Intestacy Rules, believe they have been treated unfairly, they may pursue a claim under the guidelines of the Inheritance Act 1975. This entitlement applies to spouses, children (including stepchildren), Partners of people who have lived with them in the same household for more than two years “as husband or wife” and any dependents of the deceased.

Testamentary freedom contrasts with many other countries like Scotland, and most European countries. In these countries, the law frequently includes provisions for specific beneficiaries such as spouses, parents, or children, to benefit from your Estate.  Therefore, if you own property in those nations you will need to bear in mind. For example step children are often treated totally differently to children in foreign tax regimes meaning that step children can end up with much higher tax burdens than the children, assuming that they receive anything at all. This is a particular danger if people are using the new Brussels IV legislation allowing them to apply English law to their assets in France, for example. Whilst France may respect the Law, the Tax consequences may be very different for each side of the Family, so it is always best to take local tax advice. 

Typical Errors Made in Blended Families

Passing Away Without a Will

To prevent family disputes after one's passing, it is advisable for individuals to draft a Will – this is good advice for both blended and non-blended families. It allows you to properly consider what the situation will be following your death and allows you to analyse whether or not, for example your surviving spouse will have enough to live on. A good solicitor will assist you in doing this. 

If a spouse passes away without a Will, the estate will be administered according to the rules of intestacy. This situation can lead to family tensions if members feel that the rules do not accurately represent the wishes of the deceased.

According to intestacy rules, if the estate is valued at £322,000 or less, the surviving spouse will inherit the entire estate. For estates exceeding £322,000, the surviving spouse will receive half of the amount over £322,000, with the rest divided among any surviving children. In many cases, this results in the children receiving no inheritance.

If the family home was owned as joint tenants, it would pass to the surviving spouse, but if it was held as tenants in common, it would be included in the estate.

If the surviving spouse also passes away without a Will, tensions can escalate even more. Their estate, combined with what they inherited from their deceased spouse, transfers to their own children, potentially leaving stepchildren without any inheritance. This therefore creates a lottery as to which set of children will inherit. 

Transferring all assets to the surviving spouse / Creating Mirror Wills

Another frequent error is entrusting everything to the surviving spouse with the assumption that they will provide for the children in their Will when they pass away.

Marriage relies on love and trust, leading one to expect that their surviving spouse will take care of their children after their passing. Unfortunately, this is not always the case. Stepchildren are sometimes disinherited by the surviving spouse, who, of course, has the testamentary freedom to do so, and nothing can prevent that from applying. 

For example, Mirror Wills can lead to unforeseen outcomes. These Wills are nearly identical, with each spouse leaving their assets to the other, and then to their children upon the surviving spouse's passing. It's crucial to understand that either party can alter or nullify their Will even after the other's demise, and they are not bound to follow the Mirror Wills' terms. Consequently, the first deceased spouse cannot ensure their children's inheritance. Even if one spouse revises their Will while the other is alive, there is no obligation to disclose these changes.

Consider a scenario where a widow with children from a previous marriage remarries. Initially, both the widow and her new husband draft Wills leaving their entire estates to each other, and upon the passing of the surviving spouse, to be shared among all their children. However, if the widow passes away first and the husband remarries or loses contact with the stepchildren, he may create a new Will directing his estate (much of which originated from his first wife) to his biological relatives. Consequently, upon his death, the widow's children could find themselves excluded from their mother's estate.

In the same scenario, if the husband remarries, his Will is automatically revoked and then his new wife becomes entitled under intestacy to potentially all the estate, depending upon the value and his stepchildren entitled to nothing. He will need to make a new Will to ensure that his stepchildren receive anything, and potentially to ensure his own children receive anything. 

Ways to Prevent Inheritance Disputes in Blended Families

Trusts

Another estate planning tool that can reduce the likelihood of inheritance conflicts is utilising Trusts. These can be established to safeguard assets and guarantee they are distributed according to your wishes after you pass away.

Example: John could establish a trust that includes all his assets not held jointly with his wife Sarah. The trust arrangement would allow Sarah to benefit from the assets while she is alive, with the assets then passing to John's children from his previous marriage upon her passing.

A popular choice is a Life Interest Trust, which enables a single beneficiary to enjoy an asset or income while alive. Upon the end of the beneficiary's interest, typically due to death or remarriage, the trust asset or income is then transferred to another beneficiary.

A Life Interest Trust offers a reliable method to safeguard assets from potential risks such as bankruptcy, divorce (in case of the surviving spouse's remarriage), and care home fees. In this arrangement, the surviving spouse does not own the assets but holds them in trust for future beneficiaries.

On the contrary, a Discretionary Trust allows for the distribution of assets to multiple beneficiaries and is much more flexible. Typically, this type of Trust is supported and guided by a letter of wishes, outlining instructions for the trustees regarding asset distribution. Regardless of the letter of guidance, the trustees hold the final authority in determining how the estate funds are allocated. Since the Trustees wield great power in choosing who benefits, by how much and when, it may be wise to select an impartial individual, ensuring no conflicts of interest with the Trust assets. 

Tenants in common/avoiding joint assets

Couples may also want to consider establishing a declaration to hold their marital home (or any jointly owned property) as tenants in common in specific shares, such as 50/50. With this setup, if one spouse passes away, their 50% ownership of the property becomes part of their estate and can be designated to beneficiaries in their Will. This arrangement differs from owning the property as joint tenants, where the principle of survivorship applies, leading to the automatic transfer of the property into the surviving spouse's sole name when one spouse passes away.

Likewise, joint bank accounts pass assets solely to the surviving bank account holder. Separate bank accounts may be better so that whoever dies first can make some gifts to their own family or place those assets into trust. Effectively, even if you create a Trust in your Wills to try to ensure that your children will inherit something, if you own your property as joint tenants and have all your savings in joint bank accounts then your Will is pointless because it will have nothing to “bite against”. 

How can Hegarty help?

We understand that it can be challenging to navigate conflicting interests, especially without wanting to appear distrustful towards your spouse, which could be hurtful. Nevertheless, having these difficult conversations early on can prevent heartache for your loved ones in the future. 

In cases where you belong to a blended family and feel that the Will does not adequately provide for you, you might have a claim against the estate. 

If you are interested in discussing any of the estate planning options mentioned above or need advice on contesting a Will, feel free to reach out to us for a confidential consultation.