Estate Planning, Caring wisely for your blended family

Estate Planning, Caring wisely for your blended family

Estate planning of all forms can be complex and one of the more complex factual scenarios is a ‘blended family’, particularly as there is no typical blended family. Read on to discover helpful tips to enable you to plan wisely when providing for your blended family.

The major differentiator for risk factors in estate planning is the age and dependency of the children. Balancing the different groups of blended family members (and their relationships) for which the will-maker has a community or moral expectation to provide can be dealt with by creating a ‘life estate’.

A life estate is a trust holding certain assets for the benefit of the surviving spouse during their lifetime. Life estates then ensure that the remainder passes to the identified beneficiaries in your blended family upon a trigger – death, remarriage, disclaimer or surrender.

Helpfully, life estates recognise the different family members that need to be accounted for by the will-maker, making it an attractive strategy to balance those competing priorities. The life estate gives the surviving spouse an interest in the property but does not rise to the level of ownership.

A life estate should be flexible – for example an entitlement to income, so that it provides for the spouse. It could also provide that the life tenant is permitted to rent the property and derive income. The trustee may sell the property and purchase a new property suitable to the tenant’s needs with the tenant’s input. This is sometimes called a ‘portable life estate’ and includes the potential to be used for entry to a retirement village or nursing home.

Life estates attract, even precipitate, claims. They are a magnet for Court claims because they delay the inheritance of one class of beneficiaries in preference to the lifetime of another person. Generally, the children of the deceased will not have a claim on the new spouse’s estate, so their only option is to claim within time on the estate before them. You must consider who could be an eligible person under s57 of the Succession Act 2006. Clearly the new spouse is an eligible claimant along with a child of the will maker. Depending on the length of the relationship, the definition of a child could include a child for whom the will maker and their partner have held ‘parental responsibility’ for the ‘long-term welfare’: in the right circumstances, this could include a step-child.

A life estate is often considered by Courts to be insufficient provision: people live longer and require flexibility in the use of property and sufficient income for their lifetime, and having autonomy to decide where and how they live is considered important.

The costs of maintaining the property might fall to the spouse – and they may not be able to afford it – or it comes from the estate and requires a separate fund to be set aside – which may displease the remainder beneficiaries.

Finally, there might be serious tax consequences, depending on how long the life estate runs, and what property it relates to: often by the time real estate is disposed of, any capital gains tax exemptions or roll-over rights have been extinguished. This is only to the detriment of the remainder beneficiaries.

Contact your specialist team at Streeterlaw on contact@streeterlaw.com.au or (02) 8197 0105 to ensure that your life estate for your blended family provides the care you desire for those you love.