A blended family can have a huge impact on your finances — whether it’s buying a home with your new partner or ongoing child support. But, one of the most important areas that is often overlooked, is the impact of a newly formed family structure on your estate plan.
One of the biggest concerns is making sure your family fortune doesn’t end up solely with your step-children and leave your children without an inheritance. A fair solution means your wishes are less likely to be challenged and your beneficiaries are left stress-free.
Case study – Jack and Irene
Jack and Irene are married and have children from previous relationships. Together they have a family home and a self-managed super fund. In the event of one of their deaths, they want to ensure that the surviving partner would be able to live in the family home and have access to a lifetime super pension. They also want their respective super balance to pass to their own children when they die.
The way their affairs are currently structured, on Jack’s death the family home and super would pass to Irene, and then on Irene’s death, all assets would pass to Irene’s biological children — leaving Jack’s children with nothing. Similarly, if Irene dies first, her assets would currently pass to Jack and on his death to Jack’s biological children only.
Their estate planner recommended some changes to their estate plan.
Jack and Irene’s home ownership was changed from joint tenants to tenants-in-common. This way, they each have a separate 50 per cent interest in the property that can be dealt with individually in their Wills. They also set up a testamentary life interest trust in their Wills which allows a ‘right of residency’ or, in other words, allows the survivor to be able to remain in the property for the duration of their lifetime.
After both of their deaths, the property would be distributed as set out in their Will, allowing ownership of the property to be passed equally to their respective children or as they determine is fair.
Jack and Irene’s super was converted from a self-managed super fund (SMSF) to a small APRA fund (SAF) which is essentially
an SMSF with a professional trustee. In an SMSF, the members of the fund are also the trustees of the fund. In a SAF, the services of an independent professional trustee company are employed so that, in the event that there are family disputes, the instructions of the deceased are carried out.
Their estate plan stipulates that when one of them dies the survivor receives a pension from the deceased’s super. When they have both passed away any balance of Jack’s super will be paid to his children. Any balance of Irene’s super will be paid to her children.
As a result of the planning they have put in place, Jack and Irene have been able to ensure that the survivor is able to live comfortably and after they have both passed away their respective families will inherit their remaining wealth.
If you have a blended family and need help arranging your estate plan
call your Bridges financial planner.
Source: Australian Executor Trustees.
Take the next step
To discuss your financial situation, make an appointment with a Bridges financial planner.
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This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner or a registered tax agent.
Examples are illustrative only and are subject to the assumptions and qualifications disclosed.
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