Modern life encompasses a wide range of family structures. The ‘blended’ family – i.e. a relationship where one or both parties have children from previous relationships – is now commonplace.
Everyone should have a clear plan for who they want to benefit in the event of their death and how the assets are to pass at that time in the most tax and cost-effective way possible.
Creating the plan is not always easy. Those living as part of a blended family often face even greater challenges in this respect.
There is a need to ensure that financial affairs are structured, with the relevant documentation in place, so as to enable that plan to be properly implemented at the relevant time.
The ending of one relationship and the beginning of another is likely to mean the revisiting of existing plans. The chances of there not being universally shared priorities increase, as it becomes more difficult to strike the right balance between those closest to you.
A failure to ‘grasp the nettle’, to have the difficult discussions and to take the appropriate steps increases the chances both that your wishes are not carried out in the event of your death and of there being, potentially very expensive, disputes following your death.
A will is perhaps the most fundamental document to have in place, but separate trust documents might also be required in relation to lump sums due under life insurance policies, pension death benefits and death-in-service benefits. Often overlooked and absolutely essential is the ‘letter of wishes’, providing invaluable guidance to Trustees of the factors the person putting money or assets into a Trust would like to be taken into account when exercising any Discretionary powers.
Trusts – whether contained within the Wills or separately – can be a very useful method of striking a balance between your desire to provide for your spouse or partner whilst protecting assets for children from a previous relationship in the longer term.
The inheritance tax position should not be overlooked. Married couples are provided with exemptions and additional allowances which are not available to unmarried couples (adding to the general lack of rights provided to cohabitees on separation or death). Those who have been widowed may have additional planning opportunities available to them. The recent introduction of the ‘residence nil rate band’ has further complicated matters, particularly for unmarried couples.
Financial advisers and solicitors both have something to offer in the planning process. The financial adviser’s role in considering the financial needs of the newly extended family will be of great importance, for example they might identify the need for increased life insurance cover or a requirement to consider inheritance tax mitigation, and it is often a formal financial review that discovers that existing pension/death-in-service letters of wishes are out of date.
The solicitor will advise on the creation / revision of Wills (and possibly also Lasting Powers of Attorney), the potential use of trusts to create a balance between competing demands and the inheritance tax implications of what is proposed. If the new relationship is heading towards marriage, they will doubtless also raise the issue of a pre-nuptial agreement to cover the position if that relationship breaks down in future.
Working together, the solicitor and financial adviser should be able to assist their client in tackling thorny and complex issues so that a clear plan is both devised and properly implemented.
Lee McClellan, Partner, Palmers Solicitors
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