Inheritance and Stepfamilies - the pitfalls

Step-parents, mirror wills…  Inheritance cases in a blended family situation can resemble a forest from a Grimm’s fairytale, full of shadowy danger and lurking dark enchantments.

According to the Office for National Statistics, over a third of all couples bringing up children today have a step-child living with them, and multi-family or blended households are the fastest-growing type of household in the UK. As couples with children from previous relationships marry or remarry, forming blended families, it is important for them to consider how to provide for their partner if they die first, while also ensuring their children inherit from their estate.

There are several ways in which problems tend to arise.

 

When someone dies leaving no Will

Wills are important. A Will enables a person to make it clear exactly which individuals they wish to benefit from their estate, regardless of whether those individuals are legally related to them. Through a Will, they can ensure loved ones such as unmarried partners, stepchildren and foster children are able to inherit their property, money, or other assets. 

If a spouse dies without a Will, however, their estate will be administered according to intestacy rules. This is likely to cause tension among family members if they feel the rules don’t reflect the deceased’s wishes. If the estate is worth £270,000 or less, the surviving spouse automatically inherits everything. If it’s worth more, they inherit half of the excess over £270,000 and the rest is divided among surviving children. This often means children inherit nothing. Tension increases if the surviving spouse also dies intestate and their estate (including what they inherited from their deceased spouse) passes to their children, leaving stepchildren with no inheritance.

 

Where there is a Mirror Will

Mirror Wills, which are virtually identical wills held by each individual in a couple where each spouse leaves everything to the other and then to their children, can be problematic for blended families. Morality aside, there is no legal obligation for a surviving partner to honour their deceased spouse’s wishes. The first to die can’t guarantee their children will inherit anything. In fact, since each spouse can revoke their Will at any time, one spouse can change their Will while the other is alive, without any obligation to inform them.

In blended families, one spouse could die thinking their children from a previous marriage will be provided for, but the surviving spouse could rewrite their Will to exclude stepchildren and leave everything to their own children.

To avoid inheritance disputes in blended families, various options are available.

Perhaps the most effective way to safeguard your children’s inheritance after your death, as part of a blended family, is to include a special Trust in your Will.

 

What is a Life Interest Trust?

A Life Interest Trust allows one beneficiary to benefit from an asset or income during their lifetime, and when their interest ends (usually on death or remarriage), the trust asset or income passes to another beneficiary. These are popular with blended families.

For example, a lifetime trust for the marital home allows the surviving spouse to live in the property until they die, then it passes to their children. A Life Interest Trust also protects assets from bankruptcy, divorce (if the surviving spouse remarries), care home fees, etc. The surviving spouse never actually owns the assets, but holds them on trust for future beneficiaries.

 

Owning Property as Tenants in Common

Couples may want to consider a declaration to hold the marital home (or other jointly owned property) on trust as tenants in common in specified shares (e.g. 50/50). This means when one spouse dies, their 50% share of the property goes to their estate and can be left to beneficiaries in their Will. This is different from owning the property as joint tenants, where the principle of survivorship applies and the property automatically transfers to the surviving spouse when one dies.

 

Dispute about a Will?

If you have been cut out of a Will, or if a stepmother or stepfather has inherited all of your parents' money, you could potentially raise a dispute. If you would like to know where you stand, or to discuss the best way to navigate the fairy-tale forest of inheritance and safeguard your family’s future, talk to the team at Samuels.

Article credit: Lalla Merlin