In my opinion, there is no more important time to consider your estate planning than when you are part of a blended family, whether that involves a second marriage, or a de facto relationship where one or both of you have your own children, or a first relationship with a partner who has their own kids.
Entering into a new relationship involving marriage or living together in a domestic partnership creates an expectation that you intend to provide for your partner in life and after your death. Hence, there are laws governing inheritance and superannuation designed to ensure that a spouse is looked after. Similar provisions apply in relation to children, but these are not so clear-cut. Superannuation, in particular, is an area that is riddled with potential landmines relating to whether a child is a minor, a dependent, a step-child or an adult (or some combination).
Here are a few common scenarios that cause headaches (or worse, total relationship breakdown) for families:
Scenario One – Second Marriage with Children
Where two people come into a relationship with their own kids, there is often a sense that all of the kids are “our kids”. It is common for couples to want to proceed in the “standard” fashion of leaving everything to their spouse upon their death (which may be done through joint ownership of property) and each having Wills that provide that upon the death of them, all of “our kids” will receive the estate in equal shares.
While this is all very nice in theory, in practice in can go awry. In this scenario, if one partner dies leaving everything to their surviving spouse, there is absolutely no guarantee that any part of their estate will end up with their own children. The surviving spouse could re-marry, or lose contact with their step-children. It is open to the surviving spouse to change their Will at any time to exclude their step-children. While this is not a nice thought, there are many reasons why it might happen, and it regularly does. As step-children currently have no rights under the Inheritance (Family Provision) Act 1972 (SA) (“the Act”), they will have no recourse if they are left out of their step-parent’s Will, or if there is no Will at all (perhaps link to intestacy article?).
This leaves the step-children (or their legal guardian) with the daunting decision of whether to challenge their parents’ estate within 6 months of their death, as required under the Act. This could be distasteful for a number of reasons, not least the damage it may do to family relationships.
Scenario Two – Superannuation
A common plan for individuals who recognise the need to provide for their adult children as well as their second spouse is to leave their home to their spouse (to provide security and continuity) and their superannuation to their adult children. Superannuation is often the largest cash asset of an individual and, in theory, it makes sense to have this pool of money available to distribute as part of the estate.
Unfortunately, it is not so simple. Taxation of superannuation is a significant consideration – there are significant tax concessions when superannuation is payable to a dependent. A spouse is always a dependent, whereas an adult child is usually not (perhaps link to my super article here).
Most superannuation funds will not allow you to make a binding nomination to a non-dependent. Therefore, even if you ask your super fund to pay your super to your adult children when you die, if you have a surviving spouse they are likely to ignore your request. You may get around this by making a binding nomination to your estate – but then do you really want 15% of your super to be paid in tax rather than going to your family?
As can be seen from above, estate planning in blended families involves a delicate balance between the need to provide for a spouse and the need to provide for children. Those needs can be difficult to weigh given that the individuals involved are likely to be at very different stages in their lives.
What is most important is that these matters are considered – to avoid confronting these sometimes difficult issues can only lead to greater difficulties for those left behind.
A legal mess can be avoided with proper estate planning. For further information (or if you need to make a Will) please contact Kristina Piper on 8362 6400 or email Kristina Piper. Join our mailing list to receive updates and advice on current issues.