A typical example of this could be a surviving spouse being able to live in the home of the deceased, but upon their death it passes to their surviving children. The lifetime refers to that of the life tenant therefore and not the settlor.
A discretionary trust offers a more flexible option and enables an estate to be distributed to a number of beneficiaries.
As the name suggests, the trustees have the discretion as to when, to whom and to what extent anyone benefits from the trust fund. However, it is usually backed up by a letter of wishes to give trustees some guidance about how the settlor would like the trust to be distributed.
To protect the interests of children from a first marriage for example, one or more of the settlor’s children can be appointed as a trustee so that no decisions can be made without their approval.
Solutions to avoid disinheritance
So-called sideways disinheritance can be a real risk for blended families and can easily occur if assets pass to the surviving spouse, who subsequently writes a new will that does not include the original beneficiaries (such as the children from that original marriage), or remarries.
Most people do not realise remarriage cancels any existing will that is in place, unless the will is made in contemplation of that marriage, which prevents it from being voided.
Our UK intestacy laws dictate what happens to assets if people die without a will, and are based on a traditional family model.
People simply cannot rely on these rules to make suitable provision for those closest to them after they have died, particularly in the context of the blended family.
Unlike a biological child for example, a stepchild (unless they have been adopted) currently has no legal entitlement to inherit from a stepparent where no will is in place.
Mirror wills are common practice but are generally unsuitable for blended families because of the risk of sideways disinheritance, so financial planners need to work hand-in-hand with a legal professional, as the new family set-up is going to require new wills with appropriate provision for current and past relationships.
This provision could be the aforementioned life interest trust for example, which avoids giving away total control of assets after the death of the first partner.
Prenuptial agreements
Prenuptial agreements are another useful tool. These are essentially a written agreement in contemplation of marriage or a civil partnership, which sets out in advance how the couple intend their financial and other arrangements to be dealt with in the result of the marriage breaking down.
While these are not yet legally binding in the UK, they are given considerable weight by the court system.
