Addicted to love

 

For those who have managed to find love again, marrying for a second or third time can have significant implications.

As Andrew Barton outlines within his article, a new marriage can effectively invalidate the wishes drafted in a will prior to a new marriage. If your death occurs without a valid will, leaving behind a spouse and children, the current intestacy rules result in the first £250,000 of your estate, together with your personal possessions (chattels), any assets you own as joint tenants and joint bank accounts automatically passing to your surviving spouse.

Your surviving spouse will also receive half of your remaining estate i.e. half of anything left after the above considerations, with the other half passing directly to your children if they are 18 or over or, into trust on their behalf until they are 18.  It should also be noted that these rules also apply if you are informally separated from a spouse or civil partner, but not yet legally divorced.

Intestacy example

George is a widower with 2 children, Grace aged 8 and Michael aged 10.  Last year George married Jane, a divorcée with a 19-year-old son Daniel. George’s assets included his home valued at £850,000 and a portfolio of investments worth £400,000. Jane’s assets included a let property valued at £400,000 and an investment portfolio with a value of £100,000.

George died first and on his death Jane received his personal possessions, the statutory legacy of £250,000, plus half of the remainder, being £500,000. Grace and Michael received £500,000 equally between them when they reached 18.

On Jane’s death, her son Daniel received all of George and Jane’s personal possessions, together with £1.25m, which includes the £750,000 Jane first inherited from George.  Grace and Michael would receive nothing further unless Jane specifically included them within her will.

Given that the rules of intestacy are a ‘one size fits all’ provision, in order to make a bespoke provision to fit your personal circumstances it is essential that you make or update your existing will, either shortly after marriage or before in anticipation of a forthcoming marriage.  In the interests of your surviving family, it is far preferable to deal with the potential issues at this stage rather than for a family row between step-parents and step-children to erupt following your death.

Protecting your wife and children

In order to protect the interests of biological children, many people in this position find the best way to proceed is to create a trust in their will.  Continuing from above, George could include a provision within his will to leave his home in a trust, allowing Jane to live there during her lifetime.  On her death, the home would pass in equal shares to Grace and Michael, with Daniel inheriting Jane’s own assets on her death.

A provision of this nature is known as an Immediate Post Death Interest (“IPDI”) trust. Your surviving spouse would be given an IPDI in the trust property, entitling them to an appropriate level of income or use of the trust assets, without an unrestricted right to the trust capital.

Trustees of your choosing can be appointed in your will to manage the trust.  These trustees could be given the power to appoint capital to the beneficiaries as necessary, or perhaps the power to terminate a right to income, but generally, they would be obliged to balance the needs of both the income and capital beneficiaries, subject to a letter of wishes made by you to the contrary.

With an IPDI, it is also much easier to control the level of income for the purposes of means-tested benefits, and for protection in the context of care home fees.

Balancing the interests of your biological and stepchildren

The circumstances may not be as clear-cut as with George and Jane above, instead, you may choose to pool your assets and buy a new family home. How do you protect your biological children and ensure they benefit proportionately after your death?

An option would be for you and your spouse to set up a discretionary trust in your respective wills.  An appropriate proportion of your estates could be settled into these trusts on your deaths.  You may each choose to give your own children an entitlement to the income from the trust until they reach a particular age, at which point they could become entitled to the assets held by the trust.

In these instances, it may, therefore, be advantageous for you to set up one trust for your own children and for your spouse to set up a separate trust for their children.  This would ensure both are provided for in the event of the death of one or both of you.  You may also need to rebalance this if you have children together.

There are various options available to you, and your decisions should be based on your own individual circumstances.  What is clear, in the interests of all parties involved, you should certainly consider updating your will if you have, or are looking to remarry.  If you would like any advice on inheritance planning or the associated tax implications, please do not hesitate to get in touch.

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