We were delighted to host our BInformed seminar on Blended Families yesterday. The speakers included myself, Jessica Flowerdew, an Associate in the personal and family team, our guest speaker Jo Douglas, Assistant Director, Financial Planning, Brewin Dolphin and Richard Smith, one of our family law partners. Together we discussed all the different aspects that you should look at to make sure your affairs are in order.
Why blended families?
My inspiration for hosting a seminar on blended families was my own personal situation. I got married last month and have my own” blended family”. As with any wedding there is a long list of matters that require planning in advance. However, it is important to deal with the legal and financial aspects of entering into a new relationship as well as just the “fun stuff”. My” to do” list included updating our wills, getting powers of attorney in place, considering our inheritance tax position, putting in place a trust for pension and death in service benefits, making sure that we had adequate life assurance in place should anything happen to one of us and entering into a pre-nup. This was particularly important for me as we have our 4 year old daughter to consider.
The law gives different rights, if there is a will in place or if there is no will in place, to married couples/civil partners and cohabitees. If there is no will married couples or civil partners have certain rights. In contrast, a cohabitee has to make a claim to the court within 6 months of the date of death of their partner. The court has discretion as to the award made, if any, taking into account various factors. It is therefore perhaps even more important that those living together, who are not married or in a civil partnership, get wills in place.
When individuals get married, enter into a civil partnership or live together and one or both parties have children from previous relationships – and indeed may have children together – then there are different priorities that require to be considered. Each of you may have a different perception of what is “fair”. This may involve some difficult and perhaps uncomfortable conversations. It may also take some time for the right solution to be put in place. However, it is far better to have these conversations in advance and make sure that matters are left as you would wish to cover for eventualities on death and in the hopefully very unlikely event of a break up.
The fundamental documents to have in place and get updated are your wills and powers of attorney. It is important to give careful consideration to the terms of these to ensure that they accurately reflect your wishes and that all circumstances are considered. If young children are involved then it is particularly important to consider guardians and trust provisions. It is also important to discuss where the children would live after the death of one party.
It is quite common for individuals to want to have their spouse/partner provided for but yet to ensure that assets pass to their “own” children. In my case I wanted to ensure that my husband was well provided for and had the security of living in our house but to ensure that ultimately the assets passed to our young daughter. It is common to consider the use of trusts and these can be very helpful in the right circumstances. It is possible to allow an individual the use and enjoyment of assets to ensure that on their death the assets will pass to your chosen beneficiaries (usually your own children).
It is extremely important to consider your inheritance tax position both individually and as a couple. The position is entirely different depending on whether you are married/ in a civil partnership or living together. The law provides particular advantages to married couples and civil partners. Assets passing between spouses or civil partners on death are exempt from inheritance tax. In addition, it is possible to transfer the inheritance tax nil rate band (currently £325,000) to the second death so that there is a tax free amount of £650,000 then. Since 6 April we have had the introduction of the residence nil rate band. Provided certain strict conditions are met (see my colleague Nicola Neal’s previous blog – 10 Things Everyone Should Know About the Residence Nil Rate Band) then married couples or civil partners will be able to transfer this allowance also to the second death.
There is no exemption for assets passing between cohabitees on death. In addition there is no transferable nil rate band or transferable residence nil rate band. Careful consideration should be given to the position of cohabitees. It is particularly important to think about the inheritance tax implications on the first death. It is common to worry that the house may require to be sold for the inheritance tax to be paid. Life assurance can be a useful tool here.
It is becoming more and more common for families to encompass lots of different circumstances. New relationships are to be celebrated of course. However, it is extremely important that both parties take the time and consideration required to ensure that fundamental documents are put in place that are right for the both of you. We are here to guide you through the different possibilities and provide you with the best solution for your own individual circumstances.