Updating your Will when you have remarried or repartnered can be a tricky issue to navigate. You are likely trying to simultaneously achieve the following objectives:
- Ensuring that your new spouse is financially secure in the event you pass away;
- Providing for the children of your first marriage.
Just because something is tricky, that does not mean that we can ignore it or hope that the problem goes away. If proper Estate Planning is not considered and followed through, your loved ones could be involved in a protracted legal dispute once you pass away.
We commonly meet spouse clients who would like a simple Will whereby they leave everything to one another and then everything to their surviving children. This is relatively risk free where the children of the couple are the same, as most people generally want to ensure that their joint children share in their collective wealth. This issue does become more complicated where there are stepchildren involved, who’s relationships can have a different dynamic to that of biological families. It is not unusual to find that there is distrust between the stepparent and stepchildren.
It is important to remember that not all your wealth forms part of your estate. Assets such as superannuation and life insurance will be paid out to the elected nominees or at the discretion of the trustee/insurer. Family homes tend to be owned as joint tenants which will result in your interest passing directly to your surviving spouse on your death, even if your Will says otherwise.
What are some strategies that you can put in place as a testator to address these multiple objectives simultaneously?
1. Life Interest
Provided you own your property solely or as tenants in common with your new spouse, your Will can set up an interest for your spouse which enables them to live in your property for life, until they remarry or opt to move somewhere else. The terms of their residency can be subject to conditions including payment of bills and responsibility for maintenance. In certain circumstances, the original property can be sold and converted into a more appropriate residence for the surviving spouse’s needs at that time. Once the life interest ends, the property will pass in accordance with the terms of the Will, which usually provide for your children to inherit the property. The benefit of this is that your spouse keeps a roof over their head but the equity in the property is preserved for your children, even if not realized straight away. If you don’t own your property as tenants in common, we can assist you in adjusting the title if deemed appropriate.
2. Mutual Wills
A mutual Will consists of two documents: your will and a contract. The Wills will classically mirror one another and follow the ‘simple’ principle of leaving everything to one another and then to your children, step and biological. The contract is an enforceable agreement between the new spouses that states that their Wills cannot be varied without the consent of both the spouses. Whilst very rigid documents, Mutual Wills do give you the certainty that your surviving spouse will honour your current intentions and won’t change their Will to exclude your children.
3. Testamentary Trust
A testamentary trust establishes a discretionary trust that comes into effect on your passing. To try and accommodate the needs of all parties, you would establish primary trusts for the benefit of your children whilst also naming your current spouse as a beneficiary of the trusts and including a requirement that the surviving spouse is to receive periodic distributions from the trusts. We would recommend that this overseen by an impartial third party who would take on the role as Executor, trustee and/or Appointor.
4. Life Insurance
If the additional cost of premiums is not a financial burden for you, it is possible to take out life insurance for the benefit of the children of your first marriage. They will receive a lump sum on your death and you can then gift everything to your surviving spouse via a simple Will.
Your spouse and children have a right at law to challenge your Will under Family Provision legislation. These strategies cannot take this right away from them, but effective Estate Planning should mitigate and minimize the risk of this happening.
Another takeaway point to consider is carefully considering how you and your new spouse will own joint property. It may be more appropriate to own it as tenants in common rather than joint tenants. You may also want to consider entering into a Binding Financial Agreement (or pre-nup) which will accommodate what may happen if you and your new spouse separate. Statistically, second and subsequent marriages/relationships have a higher likelihood of failing than first marriages.