Catering for children from previous relationships within your Will

With divorce on the rise and family dynamics continuously evolving, it is increasingly common for couples to meet when they already have children from previous relationships; they may or may not then go on to have children together.

When making a Will, such couples will want to ensure that they make provision for their new partner or spouse but may be wary about giving everything to them outright and relying on them to pass assets on to both sets of children on their death.

It is important to consider the provisions of your Will carefully in these circumstances, as it is possible to build protection into your Will for all parties if you wish.

The importance of preparing a Will

It is always advisable to ensure you have a Will in place, as intestacy can cause complications even in the simplest of circumstances. However, if your family setup diverges from the “traditional” family, in which a married couple have a child or children with each other (and no other children), it is particularly important to prepare a Will.

If you die intestate, your estate will be distributed in accordance with the statutory intestacy rules, which set out a hierarchy of relatives who will inherit your estate. If you are married or in a civil partnership and you also have children, the surviving spouse or civil partner will receive all of your personal possessions, the first £322,000 of the estate and half of any remaining assets; any children then receive the remaining half of the assets in equal shares.

This is unlikely to be how anyone would choose to distribute their estate, but individuals with children from previous relationships and stepchildren etc. are likely to find this particularly unsuitable.

Making a Will

The most common Wills prepared by partners, spouses or civil partners simply provide for their estates to pass to each other on the first death, before the estate is divided equally between their children on the survivor’s death.

This is sometimes still done where there are children from previous relationships, with the couple agreeing to provide for all children on the second death, but it is not always appropriate in these circumstances. If everything passes to the survivor on the first death, they will inherit the estate outright and going forward they will be free to do what they wish with any funds they inherit.

Therefore, even if it has been agreed that the survivor will leave their estate to any children their partner had in a previous relationship in addition to their own children on their death, this might not actually happen, as they could remarry or change their Will. The funds might also be used during the survivor’s lifetime, either through general spending or, for example, if they were to go through bankruptcy or need professional care.

Some people are content with this risk, on the basis that they would prefer the survivor to have outright access to and control of the entire estate. However, some prefer to ensure that at least part of their estate is protected for their children, regardless of what the surviving partner does during their lifetime.

Options to consider

There are several potential protections that can be built into your Will for these purposes.

Life interest trust

One increasingly common example is a structure known as a “life interest trust”. For example, a married couple with children from previous relationships may provide for their estates to be held on life interest trust for the survivor of them on the first death, before the assets pass to their children on the survivor’s death.

This allows the survivor to receive any income produced by the estate and to live in any property in the estate, but they do not have outright access to the underlying capital. On their death, the capital then passes to the children named in the first spouse to die’s Will. Therefore, the estate will always ultimately pass to the first spouse’s chosen beneficiaries, even if the surviving spouse changes what will happen to their own assets.

This type of trust can be created in relation to your whole estate or only part of your estate. A common alternative is to only apply it to the property, so that the surviving spouse can continue to live in the property for their lifetime, but the first spouse’s share ultimately passes to their beneficiaries. The other assets may then pass to the survivor outright in order to ensure they have access to any cash or investments they need, but the relevant share of the property (which is often the most significant asset in the estate) is protected.

It is possible to include some flexibility in the Will by providing the trustees with powers to appoint funds to the surviving spouse, so they will not necessarily be without any access to the capital, but this would be at the discretion of the trustees.

Life interest trusts have the advantage of securing the same inheritance tax advantages as outright gifts to spouses or civil partners, which are exempt from inheritance tax; although the assets are not passing to the survivor outright, they are still covered by this exemption.

Discretionary trust

The other type of Will that is often used where family circumstances are a little more complex is a “discretionary trust”. This provides for some or all of an estate to be held by trustees (selected by the person making the Will), who will be responsible for deciding how those assets are distributed amongst the beneficiaries chosen by the testator. You would usually prepare a “letter of wishes” that would sit alongside the Will, providing guidance to the trustees, but ultimately they would have total discretion.

Discretionary trusts are particularly useful in creating flexibility, because nothing is decided until the trustees are making their distributions after the date of death. This enables them to take into account all the circumstances at the time.

Where there is a partner or spouse but also children from previous relationships (and possibly children with the current partner as well), the trustees can ensure that everyone is catered for. The trust can be kept in place on an ongoing basis if desired, so the trustees can make distributions as and when necessary. For example, they can provide the survivor with a right to live in the property (whether for their lifetime or for a specified period) and make appointments of capital where necessary, but they could also advance funds to the children if they are content the survivor does not need access to everything, ensuring that all children are treated equally.

A discretionary trust does put a lot of control in the hands of the trustees, so you need to consider who you wish to appoint as your trustees carefully if going down this route. However, if you can appoint trustees who you feel understand what you want to achieve and you trust to follow your wishes, such a trust can be invaluable, as it allows you to retain that element of control (via your trustees) and provides the flexibility to cover changing family circumstances throughout your lifetime.

It is necessary to consider the tax implications when including a trust in your Will, so obtaining legal advice is essential. In many cases the tax implications will not be too onerous, and the security and protection provided by the trust will therefore outweigh any tax concerns.

Conclusion

In summary, it is important for all individuals to prepare a Will, but it is particularly important for couples who have children from previous relationships to do this, as the provisions of the intestacy rules are unlikely to be suitable. Such couples may also wish to include some form of protection in their Wills, ensuring that at least some funds are ringfenced for their children on the first death.

These protective structures can be useful even where there is a “traditional” family setup, as whilst it may be less likely that a surviving spouse will divert funds away from their own children, circumstances that are outside of their control (such as care needs or bankruptcy) may reduce the estate passing to the children on the survivor’s death if the survivor has received everything outright.

The Birketts view

The Birketts Private Client Advisory Team is well placed to assist you with making your Will, even if your family circumstances are complex. We would suggest meeting with you in the first instance in order to gain a full understanding of your family, your assets and what you want to achieve. We can then advise you on the options available to you and work with you to prepare a Will that you are comfortable makes sufficient provision for everyone you want to benefit.

Please do not hesitate to contact us if you would like our assistance with these matters.