The concept of the “nuclear family”, consisting of a married couple and their children living in a single home, first emerged in the early 20th century.
This family setup became prominent during the Industrial Revolution and sociologists of the time believed it suited the needs of society and the individual. Yet, cultural norms around the family have changed over the years.
As attitudes towards divorce shift, it is becoming more common for parents to break up and form new family units.
According to figures from the UK government, there were approximately 2.5 million separated families in the country in 2022. These families included 4 million children, an increase of 0.4 million since 2020.
Many of these separated parents could start new relationships. As a result, “blended families” that bring children with a previous partner into a new relationship are becoming more common.
Parents of these blended families could face many unique challenges, including issues with estate planning.
Indeed, a new study reported by Professional Adviser revealed that blended families are more likely to have difficulty with their estate plan.
It found that 27% of respondents from blended families did not receive the inheritance they expected from their parents. This compares with only 17% from traditional families.
Additionally, those in blended families are more likely to have disputes about estate planning with 40% of parents saying that they disagreed about how assets should be passed on. In conventional families, only 30% of people said they had disagreements of this kind.
Consequently, without the right support and forward planning, blended families may struggle to create an estate plan that satisfies everybody and suits their goals.
If you are part of a blended family, read on to learn about some of the estate planning challenges you may face, and how you can potentially avoid them.
Your assets may not be distributed in the way you intended
One of the main functions of your estate plan is to ensure your family distributes your assets according to your wishes when you die.
This may be more challenging if you are part of a blended family because changes to your circumstances can affect your will.
Getting married, for instance, revokes your existing will in England, Wales, and Northern Ireland. If you do not create a new will and you die without one, your assets will likely be divided according to the rules of intestacy. Typically, your spouse and children inherit your entire estate under these rules.
In many situations, this could mean that people who you previously named as beneficiaries in your will can no longer inherit anything.
If you wanted to leave some of your assets to a niece or nephew or a sibling, for example, this would likely not happen unless you updated your will again after remarrying.
Additionally, if you enter a new relationship but you are not married, your partner does not automatically inherit anything. As such, you need to update your will and include them if you want them to benefit from your estate.
Your children may be at risk of “sideways disinheritance”
You may want all your children to inherit an equal share of your estate. However, if you do not carefully consider your estate plan when remarrying, children from previous relationships are at risk of “sideways disinheritance”.
This can happen in several ways. If you pass away, your surviving spouse inherits your wealth and then remarries, they could, for example, write your children out of their will and leave everything to children from their second marriage.
Sideways disinheritance could happen accidentally too if you do not update your will when your circumstances change. If your estate is divided according to the rules of intestacy, for example, only your current spouse and children from that marriage may inherit your assets. This effectively writes children from previous relationships out of the will.
Unfortunately, children that are disinherited in this way may not have any legal recourse, and failure to update your will may cause disputes in the family when you are gone.
Your family could pay more Inheritance Tax on your estate
According to the UK government, estates paid £6.1 billion in Inheritance Tax (IHT) in the 2021/2022 tax year. This is an increase of 14% on the previous year, so you will likely want to find ways to reduce IHT and pass more of your wealth to your family.
This could be more challenging for blended families if you remarry and fail to update your will. Not having a legal will could mean that your assets are not passed on in the most tax-efficient way.
For example, only a direct descendant such as a child or grandchild can benefit from the additional IHT allowance known as the “residence nil-rate band”.
As such, if you do not have a clear will in place and somebody who is not a direct descendant inherits your home, your beneficiaries may not be able to take advantage of this tax allowance and the IHT bill could be significantly higher.
Unmarried couples may also face IHT planning difficulties because you cannot pass on your estate IHT free to your partner as you could if you were married or in a civil partnership. They will not automatically inherit anything either, so your estate could pass to your children instead and they may face a large IHT bill.
Fortunately, if you consider these eventualities now and plan accordingly, you may be able to significantly reduce the IHT that your family pays.
Important estate planning tips for blended families
Update your will regularly
Updating your will on a regular basis is one of the most effective ways to avoid estate planning problems.
You likely need to write a new will when you get divorced, remarried, or enter into a long-term relationship. Additionally, if you have any more children or grandchildren, you may want to add them to your will.
It may also be beneficial to review and update your will periodically to ensure that all your children are included in the way that you want them to be. This could reduce the risk of sideways disinheritance.
Additionally, having a more up-to-date will can also help with IHT planning and ensure your family benefits from all the nil-rate bands.
Consider using trusts
A trust allows you to hold assets outside of your estate and name the beneficiaries who will inherit them. When used in the right way, they can give you more control over what happens to your estate in the future.
For example, if you pass away and your surviving partner remarries, your children can still inherit assets you placed in a trust for them.
You could achieve this with a life interest trust, which allows your surviving spouse to continue living in your home after you die, and it then passes on to your children when your spouse dies.
Using trusts in this way can help you create a more comprehensive estate plan that accounts for the potential complexities of passing assets within a blended family. That said, trusts can be complicated to navigate, so it may be beneficial to take some professional advice here.
Communicate your wishes to your family
Finally, it is crucial that you communicate your wishes properly. A lack of communication in blended families can lead to confusion, and it makes it more difficult to create an effective estate plan.
Failing to have conversations about your estate plan could also mean that certain family members have unrealistic expectations about what they will inherit.
Fortunately, involving everybody in your estate plan and keeping people updated when you make changes can avoid any surprises. It also allows you to work together to pass assets on in a way that benefits you all.
Get in touch
We know that estate planning is challenging for blended families, so we are here to support you.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.