Succession planning for blended families: understanding property ownership

Why property ownership matters

Second marriages often involve:

• children from previous relationships

• different contributions to property ownership

• competing wishes between surviving partners.

The focus can often be on the preparation of the will, but not how assets are owned.

However, in certain circumstances, the way in which you own an asset can override the wishes set out in your will.

Your will only controls assets that form part of your estate.

Jointly owned assets

There are two ways in which assets can be owned by two or more people:

• joint tenants

• tenants in common

Joint tenants

On death, the surviving owner(s) automatically acquire the share owned by the person who has died.

This is known as the right of survivorship.

It does not matter what your will says. The right of survivorship takes priority, and the asset will pass automatically to the surviving owner(s).

Most joint bank accounts and family homes are owned in this way.

The risk

For blended families, joint ownership as joint tenants can create a risk that the entire property passes to the surviving owner on the first death. The survivor is then free to leave the property as they choose, which could mean the children or wider family of the first person to die ultimately receive little or no benefit from it.

Tenants in common

By contrast, where property is owned as tenants in common, each owner has a defined share that forms part of their estate on death and can therefore be dealt with under the terms of their will.

The shares do not have to be equal.

Unequal shares should be recorded in a legal document known as a Declaration of Trust.

Blended families are often advised to own property on this basis, as it provides greater flexibility over what happens to their share on death.

Changing how you own property jointly

It is possible to change the way you own property with another person, from joint tenants to tenants in common, or vice versa.

Ownership of business assets

Similarly, if assets are used by a business entity, like a company or partnership, it is important to understand if such assets are held by the entity or by the individual involved in the business.

This is particularly important for family-owned business and farming partnerships where an owner or founder has remarried. If a gift of an asset used in the business is made under a person’s will, but is not owned by them individually then it will not pass as intended on death. Disputes over the ownership of land or property which is integral to the operation of the business can have devastating implications for everyone involved.

Estate planning options: the use of life interest trusts

Owning property as tenants in common can allow for the use of a life interest trust in a will. Such trusts are often intended to:

• protect children's inheritance by preserving the deceased's share of the property for them

• give the surviving spouse or partner security through a continued right to live in the property

• strike a balance between these two competing interests.

These trusts can contain fixed provisions or can be drafted flexibly to allow the circumstances at the time of death to be taken into account. This ultimately allows for the differing needs of a surviving spouse/partner and children from a previous relationship to be met in a balanced and controlled way.

Conclusion

Reviewing the ownership of your assets, when estate planning, is essential. When done effectively for blended families, it can ensure that all your beneficiaries are provided for in line with your wishes, which will likely reduce the risk of disputes and claims being made against your estate after your death.

Find out more about our Succession planning, wills, trusts and estates expertise or contact us today to discuss how we can support you.

This article was co-authored by Senior Associate, Josie Jones.