3 important ways financial planning can reduce tension in blended families
Learn key estate planning issues blended families face, as well as three ways financial planning can help reduce tension and preserve generational wealth.
When you think about your financial legacy, you probably want to see your hard-earned wealth passed on to those you love.
To do this, you need an effective estate planning strategy. Yet 71% of Brits don’t have a clear understanding of how Inheritance Tax (IHT) works or what their beneficiaries might need to pay, according to an FTAdviser report.
And in a blended family – where one or both partners have children from a previous relationship – estate planning becomes even trickier to manage, and inaction could lead to consequences like disinheritance and family conflict down the line.
Keep reading for a closer look at estate planning issues for blended families, as well as how a financial planner can help you reduce any potential for conflict, anxiety, or stress, and preserve your wealth for future generations.
1. You need a clear, valid will to ensure the right people inherit your estate
When children and stepchildren become a part of the same family, the lines of inheritance might not be automatically clear, even if partners are married.
Without a will in place, your estate could be distributed according to the laws of intestacy. This means that only your spouse or civil partner and blood-related children will have a legitimate claim to your estate, whereas any stepchildren or unmarried partners will be legally excluded.
The easiest way to ensure your wishes are known is to put a will in place. It provides instructions for how your estate will be distributed among your loved ones, reducing any potential for future conflict.
Without a will, your loved ones might choose to legally contest the laws of intestacy, which can be a long and difficult process that may worsen their emotional distress.
While a solicitor can help you make a will, a financial planner can work with you to:
- Value your assets
- Facilitate your wishes regarding who inherits your estate
- Create a financial plan that divides your wealth among your blended family according to your wishes.
Creating a sound will can help to relieve any uncertainty your blended family might experience after you pass away and ensure that everyone you want to benefit from your financial legacy is able to do so.
2. Trust structures could help you avoid “sideways disinheritance”
While a will can be a strong pillar of your estate plan, it must be kept up to date and might struggle to fulfil your wishes in the long term.
For instance, you could choose to leave your entire estate to your spouse after you pass away with the intention that they leave any remaining wealth to your children and theirs.
However, even if this wish were formalised in your partner’s will, it would become null and void if they were to remarry. Therefore, under the laws of intestacy, your children could be legally ousted from their inheritance – this is known as sideways disinheritance.
To avoid this, your spouse could instead write up a will in contemplation of marriage. This allows their will to remain intact even in the case of remarriage; therefore, all blended family members will still receive an inheritance according to your shared wishes.
Setting up a trust could also ensure that your wealth passes on according to rules you set out, maintained by a board of trustees you appoint.
For example, if you set up a life interest trust, you could instruct that the wealth it contains can only be accessed by your spouse. After their death, the wealth can be evenly distributed among your children and stepchildren.
The trustees you appoint will maintain your best interests long after you die, as well as adapt the trust to any new developments that might affect who receives your estate’s wealth.
A financial planner can help you evaluate which trust best suits your needs and life objectives, and work alongside your solicitor to set one up on your behalf.
3. Pass on more wealth to your children and stepchildren using tax-efficient strategies
Your blended family might be made up of many children and stepchildren. With more loved ones to distribute your inheritance to, you’ll likely want to keep as much of your money out of the scope of IHT as possible.
Therefore, tax efficiency is in your best interest. Thinking about IHT in advance helps ensure that as much of your estate as possible passes to your family members, which is especially important if a larger family is sharing the inheritance.
There are various strategies you can use to help reduce a potential IHT liability, including:
- Trusts
- Lifetime gifting
- Potentially exempt transfers
Your financial planner can tailor your estate plan to take advantage of one or multiple IHT-efficient avenues, based on your financial and family circumstances. They can also implement these strategies on your behalf, allowing you to focus on what’s more important, like spending time with your loved ones.
Get in touch
The rules for estate planning and blended families don’t have to be complex.
Your Kellands financial planner can help you understand how best to use your wealth and implement a strategy to protect all of your loved ones.
If you’d like to learn more, email us at hale@kelland.co.uk or call 0161 929 8838.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
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.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.