News | July 11, 2022

Litigation Mitigation: Succession Planning for Blended Families

When making a new Will, it can be difficult for an individual (“the testator“) to provide for a second spouse as well as children from previous marriages. Not only do testators need to balance the competing interests of their surviving spouse with their longer term inheritance plans, but family tensions can also escalate and provide fertile ground for litigation.

One option is to include a clause in the Will giving a surviving spouse the right to reside in the matrimonial home for life but without giving the spouse the right to pass the home to their own beneficiaries on that spouse’s death. Depending on their circumstances, a capital sum may also be needed to provide an income and means to maintain the property. This option allows the property to be used by the surviving spouse without passing ownership to them. On the death of the surviving spouse the property can revert to the testator’s children as set out in their Will. A right to reside in the matrimonial home can, however, be impractical if a move to a nursing home or alternative accommodation becomes necessary. This “right to reside” does not entitle the surviving spouse to any rent from the property and, if the property is not fully occupied or vacant, it could lead to a forfeiture of the right and subsequently entitle them to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the “1975 Act“) if reasonable financial provision for them has not been made.

An alternative is to create a life interest Will trust for the surviving spouse with the capital assets reverting to the children on the surviving spouse’s death. The surviving spouse is thereby entitled to the income of the relevant assets and would usually have a right to occupy a property or properties, such as the matrimonial home, for life. Once the spouse dies, the testator’s children can inherit the assets which have been protected from dissipation by the trust structure. A life interest trust also has the added benefit of flexibility; if the needs of the surviving spouse change, the trustees, with the requisite powers, could rent out the property to fund care or sell the property and buy more appropriate accommodation. This approach can also provide inheritance tax planning benefits and opportunities, and will work best where the estate is large enough to sufficiently provide for the surviving spouse. If it is not, then the surviving spouse may have grounds to bring a claim under the 1975 Act and request a capital sum.

The needs of the children must also be considered; if they are in financial need or suffer from a disability, they may also have a claim under the 1975 Act.

A testator should take legal advice on the structure of their Will, and consider carefully the size of their estate and whether any of their relations (either included in the Will or not) could have potential claims under the 1975 Act.