Careful estate planning is essential for blended families to minimise potential conflict and ensure that intended beneficiaries are provided for. Unfortunately, there is no “one size fits all” estate plan which can be used for blended families. Some of the mechanisms which are used in estate planning for blended families will be discussed below.
Mutual Will Agreements
A Mutual Will Agreement is a contract between two people that requires both Wills to be drafted in specified terms. This agreement will also include a term that prohibits either person from revoking or amending their Will.
This mechanism may be useful where a Will maker wishes to gift their estate to their surviving spouse during their lifetime, but also wants to ensure that their wealth passes to their children once the surviving spouse has died.
A Mutual Will Agreement does not prevent a Will from being revoked in the usual way prior to death or loss of capacity (e.g. in certain circumstances remarriage will revoke your existing Will). However, if the surviving person has beached the agreement by changing their Will, the beneficiaries who would benefit under the operation of the agreement have a right to enforce such.
Life Interest trust
A life interest trust allows a Will maker to provide for a beneficiary (i.e. life tenant) during his or her life while preserving the capital for other beneficiaries (e.g. children) after the death of the life tenant.
A life tenant is entitled to all income generated by the trust but does not control the capital. Following the death of the life tenant, the capital is then distributed in accordance with the terms of the Will.
The life interest trust may end in a number of ways, including:
- death of the life tenant;
- the occurrence of a specified event in the Will (e.g. remarriage);
- by agreement; or
- surrender.
This mechanism is commonly used where the Will maker is concerned that his or her children may miss out on their inheritance due to the Will maker’s spouse remarrying. However, due to the inflexibility of this mechanism, a discretionary trust is usually preferred in many circumstances.
Right of residence
An alternative to a life interest is the right of residence, which is used to provide a home for a beneficiary. A few things to consider when granting a right of residence include:
- who will be responsible for paying the outgoings of the property?
- If the trustee is responsible to pay for the outgoings, is there sufficient funds set aside to meet such expenses?
- What happens if the property becomes unsuitable for the needs to the beneficiary in the future?
It is recommended that the Will provides for substitute accommodation to be acquired when the property becomes unsuitable for the beneficiary.
Need help?
If you require any further information in relation to estate planning, please contact our team of Lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry.
