Blended Families and Wills: Why "Leaving Everything to Each Other" May Not Be Enough

If you have remarried, begun living with a new partner or are raising children from different relationships, you may be part of a blended family. This is an increasingly common family structure but it can create particular estate-planning challenges. 

 

Many couples adopt a straightforward approach: each leaves everything to the other, expecting the survivor eventually to divide the estate between their respective children. Although that arrangement may appear fair, it does not necessarily guarantee that each person’s children will ultimately inherit. 

 

Consider a couple who each have children from a previous relationship. Their wills leave everything to each other, based on an understanding that, after the survivor’s death, the remaining estate will pass between all the children. 

 

If the first spouse or civil partner dies and leaves the estate to the survivor outright, the survivor generally becomes the absolute owner of those assets. Subject to any legally binding arrangements, the survivor may then: 

• Make a new Will benefiting only some of the children or different beneficiaries altogether; 

• Spend, sell or give away the assets during their lifetime; 

• Change the intended division of the estate as family or financial circumstances develop; or 

• Remarry or enter into a civil partnership, which will usually revoke an existing Will unless that Will was made in contemplation of the particular marriage or civil partnership. 

 

A new spouse or civil partner does not automatically inherit the entire estate in every case. However, if the survivor dies without a valid Will, the intestacy rules may give the new spouse or civil partner a substantial entitlement. The precise outcome will depend on the family circumstances and the value and nature of the estate. 

 

These outcomes do not necessarily arise from bad intentions. Relationships, financial needs and family dynamics change over time. Nevertheless, the result may be that the children of the first person to die receive less than expected or nothing at all. 

 

Cohabiting partners should also be aware that, unlike spouses and civil partners, they do not automatically inherit under the intestacy rules in England and Wales. A valid Will is therefore particularly important for unmarried couples. 

 

One possible solution is a life interest trust established by Will, sometimes called an immediate post-death interest trust where the relevant tax conditions are satisfied. 

 

Rather than leaving specified assets outright to the survivor, the Will places them in trust. The surviving spouse, civil partner or partner (often referred to as the life tenant) is entitled to use or benefit from the trust assets in accordance with its terms. 

 

Depending on how the trust is drafted, the life tenant might be entitled to: 

• Live in a property owned by the trust; 

• Receive income generated by trust investments; 

• Require the trustees to use trust funds in specified circumstances; or 

• Move to a replacement property, with the sale proceeds remaining within the trust. 

 

The underlying capital is controlled by the trustees rather than owned outright by the life tenant. When the life interest ends (commonly on the life tenant’s death, but potentially on an earlier event expressly specified in the Will) the remaining trust assets pass to, or continue to be held for, the named beneficiaries. Those beneficiaries may include the children of the person who created the trust. 

 

The trust terms must be drafted carefully. A life interest does not automatically end if the life tenant remarries, enters care or leaves the property; those events have legal effect only if the trust expressly provides for them. The Will should also address practical matters such as repairs, insurance, household expenses, replacement properties and the trustees’ powers to advance capital. 

 

A properly structured life interest trust may: 

• Provide the survivor with housing or income while preserving the remaining capital for specified beneficiaries; 

• Reduce the risk that the assets will later be redirected solely to a new spouse, partner or another branch of the family; 

• Create a clear and legally enforceable framework rather than relying on informal family promises; 

• Give trustees a degree of flexibility to respond to changing circumstances; and 

• Support inheritance-tax planning where the trust and the wider estate are structured appropriately. 

 

However, a life interest trust does not guarantee that the ultimate beneficiaries will receive assets of a particular value. Trust capital may fall in value, and the Will may authorise capital expenditure or payments for the life tenant’s benefit. The balance between the survivor’s needs and the interests of the ultimate beneficiaries must therefore be considered carefully. 

 

A trust established by Will can deal only with assets that pass under the deceased person’s Will. 

This is particularly important where a couple owns their home jointly. If the property is held as joint tenants, the deceased owner’s interest will ordinarily pass automatically to the surviving joint owner by survivorship, rather than under the Will. It may therefore be necessary to consider whether the property should instead be held as tenants in common, so that each owner’s defined share can pass into a will trust. 

Changing the form of co-ownership has significant consequences and should form part of the overall estate-planning arrangements. Mortgage terms, Land Registry documentation, insurance and any declaration of trust may also need to be considered. 

 

Pensions, life policies and jointly owned bank accounts may likewise pass outside the Will, depending on their terms and ownership. Beneficiary nominations and expressions of wishes should therefore be reviewed alongside the Will. 

 

It is sometimes suggested that a life interest trust Will protect assets from care fees. That description is too broad. 

 

Where the first person’s share of an asset is validly placed in trust by Will, that capital is not usually owned outright by the survivor. Nevertheless, the treatment of trust income and capital under adult social-care charging rules depends on the terms of the trust, the survivor’s rights and the applicable legislation and guidance. 

 

Arrangements deliberately intended to avoid care charges may also be examined under the deprivation-of-assets rules. A life interest trust should therefore be adopted because it meets genuine succession and family-provision objectives, not on the basis of any assurance that it will prevent care costs. 

 

The inheritance-tax treatment of a life interest trust depends on its precise terms and the identity of the life tenant and ultimate beneficiaries. 

 

Where a qualifying immediate post-death interest is created for a surviving spouse or civil partner, the spouse exemption may apply on the first death. The trust assets will generally then be treated as part of the life tenant’s estate for inheritance-tax purposes on their later death. 

 

The residence nil-rate band may also be relevant where a qualifying residence passes to direct descendants, including through certain trust arrangements. Its availability is subject to detailed statutory conditions, the size of the estate and the nature of the beneficiaries’ interests. 

 

Unmarried partners do not benefit from the inheritance-tax spouse exemption. Their planning may therefore require a different approach. 

 

A life interest trust is not the only available arrangement. Depending on the family’s objectives and circumstances, the options may include: 

• A Discretionary Will Trust; 

• An outright gift combined with other provision for children; 

• Specific gifts or legacies for particular beneficiaries; 

• Life assurance written in trust; 

• Pension beneficiary nominations; 

• Carefully structured ownership of the family home; 

• Reciprocal or coordinated Wills; or 

• In limited circumstances, mutual Wills intended to create legally binding obligations. 

 

Mutual Wills can have restrictive and potentially contentious consequences and should not be confused with ordinary mirror wills. Mirror wills generally remain revocable, meaning that the survivor may change their will after the first death. 

 

A deed of variation may sometimes be used after a death to redirect an inheritance. However, it depends on the agreement of the affected beneficiaries and must satisfy specific requirements if it is to be effective for inheritance-tax or capital-gains-tax purposes. It should not be treated as a guaranteed substitute for appropriate lifetime planning. 

 

Trust planning cannot prevent every dispute. A surviving spouse, civil partner, cohabitant, child or other eligible person may, in appropriate circumstances, bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 on the basis that the deceased’s Will or the intestacy rules failed to make reasonable financial provision. 

 

The likelihood and potential effect of such a claim will depend on matters including the claimant’s relationship with the deceased, their financial resources and needs, the size of the estate and the competing interests of other beneficiaries. The estate plan should therefore balance testamentary wishes with foreseeable dependency and family-provision issues. 

 

Discussing what should happen after the first death can be difficult, particularly where children from previous relationships are involved. Avoiding the issue, however, may leave important decisions to be resolved after death, when relationships may already be under strain. 

 

A carefully prepared Will can often provide security for a surviving spouse or partner while preserving assets for children or other beneficiaries. The appropriate arrangement will depend on the family structure, property ownership, financial needs, tax position and the degree of flexibility required. 

 

If you are part of a blended family, our team can help you review your Wills, property ownership and beneficiary arrangements and put in place an estate plan that reflects your priorities.