Blended families: how to look after second spouse and not risk kids' inheritance
By Brian Hor
Many modern households are blended families, in which it's not unusual to have stepchildren of one of the parents in the couple.
Often the household starts out as a "traditional" family with two people who are both the parents of the children. Then one of them leaves the family, and the remaining parent finds a new life partner who might bring children of their own into the relationship.
The popularity of the 1960s TV show The Brady Bunch suggests that this phenomenon has been common for decades.
If your household feels like The Brady Bunch, you could set up a "mutual wills arrangement" to find a solution for everyone.
Yet the issue of how to look after your second (or subsequent) spouse when you die without risking your own kids' inheritance remains a perplexing issue – one that's still poorly dealt with by couples and their advisers.
It doesn't need to be this way, however, as there are solutions for looking after your second spouse without compromising your children's inheritances.
The big issue – particularly in today's property market where home affordability is at an all-time low – is how to make sure that the second spouse has somewhere to live but also ensure the family home (or your share in it) goes back to your kids when your spouse dies (or finds someone new and re-marries).
The old-fashioned solution was for members of a couple each to make a will that gave their interest in the family home (often together with all other assets, especially if neither had enough assets to live on) to each other, and on the death of the survivor the combined estates of both members of the couple would be split between all the children in appropriate shares. An excellent solution – if you could only trust your surviving spouse not to change their will after you die to benefit only their own kids and cut your kids out.
To prevent this, the couple could also enter into a "mutual wills arrangement" whereby they agreed not to change their wills after one of them died, so that if the surviving spouse broke the agreement the children of the deceased spouse could enforce the agreement in court. While the courts did recognise and enforce such arrangements, in many respects it was akin to "locking the gate after the horse has bolted".
A modern and effective solution is for a couple to grant a right of residence to each other to live in their share of the family home for life (or until entering into a new relationship), and afterwards the share of the home would return to the children of the deceased partner.
There are solutions for looking after your second spouse without compromising your children's inheritances.
As a result, the surviving spouse never obtains legal ownership of the deceased's share of the home, which safeguards the return of the home and its capital value to the intended ultimate beneficiaries.
The same solution can protect the other assets of the deceased spouse, especially where the surviving spouse does not have sufficient assets of their own to live on.
Rather than giving the other assets to the surviving spouse outright, the will of the deceased spouse can establish a trust over the assets that gives the surviving spouse the right to live off the income for the rest of their life (or until entering into a new relationship), and when the right expires the benefit of the capital goes back to the children of the deceased spouse.
As one might expect, there is an art behind drafting such arrangements correctly and in anticipation of likely contingencies. So it's worth seeking the assistance of a properly qualified and experienced estate planning lawyer.
A couple could draw up a will that grants right of residence to each other to live in their share of the family home for life, or until entering into a new relationship. Louie Douvis
Brian Hor is special counsel, superannuation and estate planning, at Townsends Business & Corporate Lawyers.