Do you have children from a previous relationship? Have you made sure that you have fairly provided for your partner, as well as your children?
Blended families are becoming more commonplace in today’s society. This often means one or both partners in a relationship have children from a previous relationship (and the new partners may also go on to have children together).
It is particularly important for partners in blended families to have an open and honest conversation about what will happen if either partner dies and how each child will benefit from the respective estates. While these conversations may be difficult to have, it is much better for you to discuss these matters now, rather than to leave your loved ones questioning your intentions after you die.
Are you coming to the relationship with more assets than your partner?
In some circumstances, one partner will come into a relationship with assets from a previous relationship, in which case, they may wish to “ringfence” those assets for the children of that previous relationship.
If you want to protect your assets for the benefit of your children, you will need to do two things:
1. Incorporate your intentions in your Will.
2. Enter into a contracting out agreement (a pre-nuptial agreement).
In our previous article in this series, here, we explained that a survivor has two options on the death of their partner. “Option A” entails the survivor receiving assets under family law rules and “Option B” means the survivor receives assets under the Will. A lot of people don’t realise these options exist, which is why you should ensure you are covered by both family law and your Will.
How can I ensure protection under family law?
If you are married or have been living with your partner for at least 3 years, the default position under family law is that all relationship property is divided 50/50 in the event of separation. Relationship property can include things that you may think of as “mine”. For example, if you purchased the family home before your relationship commenced, and then live there with your partner/spouse, the family home will likely be subject to a 50/50 division in the event of separation, regardless of the financial contributions of the parties.
In these circumstances, we recommend entering into a contracting out agreement. The purpose of this agreement is to “contract out” of the usual law that will apply, and instead record what is yours and what is your new partner’s. In the example above, you could record that the family home is your separate property and your partner is not entitled to a half share in it in the event of separation. Think of a contracting out agreement as an insurance policy - while you hope that it will never need to be relied upon, it is worth having one to protect your assets, just in case a separation does occur in the future.
What does this mean for my Will?
Your Will should reflect the same intentions that you have recorded in your contracting out agreement. Using the above example, you may decide that your surviving partner can retain the family home after your death to live in with your children. However, you may wish that the family home passes to your children if the surviving partner re-partners or dies. This is called a life interest.
This will mean the surviving partner can still have the use of the home after you die, but the actual ownership of the home will be reserved for your children’s benefit.
Are there special heirlooms that you want to give your children?
You may have specific items, such as jewellery or artwork, that you would like to leave to a specific person, for example “my mother’s engagement ring to my daughter”. If you would like to do this, it is important to identify the item and the person you wish to leave it to in your Will.
If any specific bequests are for your children’s benefit (for example sums of money), but your children are not old enough to responsibly look after them, the executor/trustee of your estate can look after the bequest until your children reach a certain age which you should state in your Will.
How will your children be looked after if you die?
There are two considerations here:
1. How will the assets you want to leave for your children be dealt with?
2. Who will make important decisions about your children?
If your children are under 16 years, we usually recommend that assets are held on trust until your children reach a certain age (for example 20-25 years). The trustee of your estate will be responsible for financial decisions until the children reach the nominated age (for example, whether to direct money towards certain types of schooling or extra-curricular activities). As an additional layer of protection, you may want to think about whether you want to take out life insurance and leave your children as beneficiaries of the policy. This could ensure your children receive a capital payment from the estate if, for example, you have left a life interest to the surviving partner as it may be some years before your children receive such share.
You can also appoint a guardian to make important decisions about your children while they are minors. Guardianship decisions include schooling and medical decisions. You should think about whether the trustee of your estate and your guardian are the same person or whether you want to keep these roles separate to ensure accountability (for example, the guardian cannot use the funds in your estate frivolously when making financial decisions for the benefit of your children).
If you do not currently have a Will in place, or have an existing Will and decide it may need some updating, then now is the time to get in touch with one of our experienced Wills and Estate lawyers who can assist with this process.
Contact us on 03 441 2743 for a discussion about your Will or find out more about the Wills and Estates team here.