Key takeaways
Succession planning for blended families creates added complexity
Basic Wills often don’t meet needs of surviving spouse and children from previous relationships.
Trust structures can assist in providing flexibility and protection
The right structure will depend on a lot of factors to meet specific aims.
Being proactive in succession planning can avoid disputes
Suspicion and mistrust can be alleviated within families when clear wishes are left on death.
Succession planning is particularly important for blended families, where there may be a need to balance the financial security of a surviving spouse with the desire to preserve wealth for children from a previous relationship.
The challenges for blended families
With nearly half of all marriages ending in divorce, second marriages and long-term relationships involving children from different families can create complex succession planning challenges. These situations often require more than a basic Will to ensure assets are distributed according to your wishes and all loved ones are properly provided for.
Outright gifts to a surviving spouse can lead to challenges from children on death, or result in the children being disinherited by their step-parent. Similarly, splitting the estate between surviving spouse and children can lead to the former being left without sufficient financial support and being unable to maintain the lifestyle to which they were accustomed when they remarried.
Often seen as an almost impossible position to deal with, the bigger problem can be understanding how the competing aims and objectives within a blended family can be balanced, to protect children from potentially being disinherited by a step-parent, whilst providing for the surviving spouse.
How Trusts can help
Trusts can be an effective estate planning tool to balance these competing needs, helping to ensure that assets are available to provide for the surviving spouse while providing protection and flexibility for future generations.
Two of the most common trusts used within Wills for blended families are Life Interest Trusts and Discretionary Trusts.
Life Interest Trusts
A Life Interest Trust can provide financial security for a surviving spouse or partner by allowing them to receive income from assets or continue living in a property during their lifetime. When they die, those assets pass to the beneficiaries chosen by the deceased, often their children. This can be a useful way to provide for a current spouse while preserving assets for children from a previous relationship.
Discretionary Trusts
A Discretionary Trust gives trustees the flexibility to decide which beneficiaries receive assets, when, and in what amounts. This allows them to respond to changing family circumstances and individual needs over time. For blended families, this flexibility can be particularly valuable, helping to protect assets and support beneficiaries in the most appropriate way.
Practical planning considerations
The right structure will often depend on a number of factors, not least the make-up of the family, the nature of the assets in question and their overall value. This is all relevant when considering the practicalities around ensuring sufficient financial provision is made for the surviving spouse, the time that may pass before children receive any benefit and how conflicts within the family can be avoided.
Disputes within estates are often time consuming and costly, which can lead to far less inheritance being available for beneficiaries and irreparable fractures arising within families. The flexibility and protection offered by trusts also allows for detailed letters of wishes to be left for family members so that they can fully understand why the decisions to structure succession planning in a certain why have been made. This can often take the sting out of any grievances family members may have, and can prompt constructive conversations about succession planning during an individual’s lifetime so that no one is shocked or surprised by the terms of the Will on death.
Obtaining expert advice can not only ensure the correct structure and protections are put in place, but it is an opportunity to plan as tax efficiently as possible, both on the creation of the trust and on the death of the surviving spouse.
With the Inheritance Tax free allowance for an individual frozen at £325,000 until 2031 and the proposal for undrawn pensions to be subject to Inheritance Tax from April 2027, it is more important than ever to review the tax implications on death to ensure succession planning is structured as tax efficiently as possible.
Our Private Client team advises business owners and high net worth individuals in all aspects of succession planning. Learn more about our expertise in the creation and administration of trusts.
