Estate planning for blended families: how to provide for a spouse and still protect your children
Second marriages produce most of the estate litigation in every country on this list. The two ways it goes wrong, the structures that hold, the assets that bypass the will entirely, and the conversation.
General information, not advice.
Key facts
The two classic failures: everything to the new spouse, who later leaves it all to their own children; or everything to the children, leaving the spouse to sue under family-provision law. Both are avoidable with a trust that gives the spouse the use and the children the capital.
Joint accounts, jointly owned homes, superannuation and pension nominations and life policies pass outside the will; in a blended family they are usually where the plan breaks.
Every country here lets a spouse or child claim against a will that leaves them short: family provision in every Australian state, the Inheritance (Provision for Family and Dependants) Act 1975 in England and Wales, the elective share of a third to a half in most US states, dependants' relief in the Canadian provinces, maintenance from the estate in Israel, and forced heirship in most of the EU and in Brazil.
The two classic failures
A man remarries at sixty. His will leaves everything to his new wife, trusting her to look after his two adult children. She survives him by twenty years, remarries, and her will leaves everything to her own children. His children inherit nothing and cannot do anything about it, because a promise is not a trust. Or: his will leaves everything to his children. His wife of fifteen years, who gave up her home to move into his, is left with a claim, a lawyer and a grievance against her stepchildren that lasts the rest of her life, and the English and Australian courts routinely award her the right to live in the house and a capital sum besides. Both outcomes are common, and both come from treating the estate as one lump that must go to one side.
Structures compared
Structure | What it does | Where it is used |
|---|---|---|
Life-interest (life estate) trust | The spouse has the use of the home and the income for life; the capital passes to the children on the spouse's death; the trustees can be given power to advance capital to the spouse for care | UK (the immediate post-death interest trust, taxed as the spouse's for inheritance tax so the spouse exemption applies), Australia, Canada (the spousal trust, which keeps the rollover), Singapore; the standard answer |
QTIP trust | The US version: qualifies for the marital deduction, the spouse must receive all the income for life, the remainder goes to the children the first spouse chose and cannot be redirected | United States; the workhorse of second-marriage planning above the exemption |
Testamentary discretionary trust | Trustees hold the estate with discretion across spouse and children; flexible, tax-effective in Australia, needs trustees the whole family trusts and a letter of wishes that ranks the claims | Australia, Canada, UK |
Mutual wills | Both spouses agree wills that the survivor cannot change; enforceable in equity but rigid, and fought over when the survivor's circumstances change | UK, Australia, Canada, New Zealand; rarely used in the US, where a contract to make a will does the job |
Binding financial agreement / prenup / postnup | Fixes what each spouse takes on divorce and can limit claims on death; must meet formalities (independent legal advice for both, full disclosure, no duress) | Australia (a binding financial agreement under the Family Law Act, which can also exclude family-provision claims in some states if the court approves), UK (persuasive since Radmacher v Granatino but not binding), US (binding in most states under the Uniform Premarital Agreement Act), Canada (binding, subject to fairness review) |
Usufruct | The civil-law life interest: the spouse uses and takes the income, the heirs own the bare title, and the two merge on the spouse's death | France (the spouse's statutory option of a usufruct over the whole estate), Spain (the spouse's usufruct over the mejora third), Germany (the Nießbrauch), Brazil |
Right of residence | A narrower right to live in the home for life or a period, without the income from other assets | Everywhere; often used with a life policy or a legacy to give the spouse income |
The assets that bypass the will
A home held as joint tenants passes to the survivor automatically, whatever the will says; holding it as tenants in common is what lets each spouse leave their share to their own children, and severing a joint tenancy is a one-page notice in most countries. Superannuation and pension death benefits go where the nomination or the trustee says, and an old nomination to the first spouse is the commonest surprise; in Australia a spouse and the children of a first marriage are all dependants who can claim, and the fund trustee decides between them if there is no binding nomination. Life policies pay the named beneficiary. Joint bank accounts pass by survivorship. US retirement accounts under ERISA go to the current spouse unless the spouse has waived in writing, whatever the designation says. In a blended family the plan is only as good as the list of these assets and the last date each was checked.
Agreements before and after marriage
An agreement made before or during the marriage can set what each spouse keeps and what the survivor may claim, and it is the honest place to put the arrangement: signed by both, with independent advice, when both are well. It does not replace the will and the trust; it stops the claim that would otherwise undo them. In Australia a binding financial agreement can deal with death as well as separation; in the United States a prenup can waive the elective share and the ERISA spousal rights (the ERISA waiver must be signed after the marriage); in England a prenup is one factor in an Inheritance Act claim, and a strong one if both were advised.
The house, specifically
The house is where blended families fight, because it is where the spouse lives and what the children think of as theirs. The answers: the spouse has a right of residence for life or until remarriage or cohabitation, with the trustees able to sell and buy a smaller home; the costs of the house (rates, insurance, repairs) allocated in the will between the spouse and the trust; and the children told, by the parent, that the house is their stepmother's home for her life and theirs after. A right of residence "until remarriage" is common and cruel; "for life" with a power to downsize is kinder and litigated less.
Talking about it
The plan that works is the plan both sides have heard from the person who made it. A spouse who has been told, by her husband, that the house is hers for life and then goes to his children, and why, does not sue his children. Children who have heard their father say he will look after his wife first and them after do not resent her. The documents fix the outcome; only the conversation removes the grievance, and the conversation is the thing most people skip.
Frequently asked
Can I leave everything to my spouse and trust them to look after my children?+
You can, and it is the commonest way children of a first marriage end up with nothing. A life-interest or QTIP trust gives the spouse the use for life and the children the capital after.
Can my spouse contest my will?+
In every country listed, a spouse left without adequate provision can claim: family provision, the Inheritance Act, the elective share, dependants' relief, maintenance or forced heirship depending on where you are.
Does a prenup cover what happens when I die?+
It can, if drafted to; many only deal with divorce. Ask the lawyer to address death expressly, and in the US to include the ERISA waiver after the wedding.
What happens to the house if we own it jointly?+
As joint tenants it passes to the survivor outright, whatever the will says. Sever the joint tenancy into tenancy in common if each of you wants your share to go to your own children.
Are stepchildren entitled to anything?+
Not by intestacy in most countries, and not under a will that does not name them. A stepchild who was financially dependent can sometimes claim; otherwise they inherit only what the will gives them.
Record the part the documents cannot hold
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