19 Aug 2023
For families with step-children a robust succession plan can help ensure assets stay within bloodlines, while providing clarity and peace of mind. Lumin Wealth’s Managing Director Martin Cotter explains more.
Succession planning can be very important for blended families where a couple have a child, or children, from previous relationships. This article outlines the various complexities, and highlight some possible solutions.
Practical factors and emotional difficulties
Typically there are a number of practical considerations to account for. You may wish to leave certain personal assets to your own children and grandchildren, or protect your family assets from future bankruptcy, or in the event of a divorce, or remarriage of a former spouse following death.
Planning will also be dictated by the age of your children and step-children, and whether they are likely to be dependent at later life stages.
Succession planning can be an emotive issue, but having step-children in the picture may add an extra layer of emotional difficulty.
Various studies reveal that many blended families fail to plan for their situation due to the emotional complexities involved, which can lead to negative financial and familial outcomes down the line.
Making a will
An initial priority should be instructing a will and ensuring it remains up to date, as this outlines your requirements for your beneficiaries.
If you own a property jointly with your partner you may want to consider whether this should be held as joint tenants, or whether a tenants in common approach is appropriate. In both cases the property forms part of the estate.
Under a joint tenancy arrangement the property would automatically go to your surviving partner, whereas under a tenants in common arrangement ownership is dictated by the will in the event of death.
Having an accurate and up-to-date will is especially important for a blended family. If a will is not in place, your assets will be shared under so-called ‘intestacy laws’. A surviving spouse would typically be the beneficiary of a significant portion of your assets in such a situation, and your step-children would be in line to inherit your spouse’s estate, meaning your own children could be ‘locked out’ of a large part of their potential inheritance.
Use of allowances
The threshold above which inheritance tax (IHT) is payable is £325,000. This allowance, which is known as the nil-rate band, is transferable to a spouse or civil partner on death, giving couples a potential combined nil-rate band of £650,000. If the beneficiaries of the family home are children or grandchildren, you may be able to use the main residence nil-rate band of £175,000 per person. This can boost the total IHT-exempt threshold for a married couple or civil partners to £1,000,000.
Trusts are a key tool
Trusts can play an important role in estate planning for blended families. Setting up trusts can protect assets and ensure they are passed on to your designated beneficiaries.
There are a range of trusts that suit different planning needs, including discretionary trusts, which can provide added flexibility.
You should look to appoint reliable trustees and ensure they have a clear understanding of the trust structure and your designated beneficiaries.
Trustees have a fiduciary responsibility to the trust beneficiaries, so must invest the assets appropriately with consideration to both the beneficiaries’ circumstances, and the trust requirements. The desired outcome for the respective beneficiaries requires careful consideration.
It is a good idea to start planning as soon as possible, as delaying important decisions may result in your direct descendants receiving nothing from your estate. To find out more call 01727 893 333, or visit luminwealth.co.uk.
