Blended families

Most clients would like their wills to be simple, usually leaving assets outright to their partner in the first instance, with children or other chosen beneficiaries benefiting following the survivor’s death. However, this simplicity can have unintended consequences when the testator is in a blended family.

Practitioners need to be aware of potential issues and discuss solutions with their clients, such as using an immediate post-death interest (IPDI) for a surviving spouse following the first death.[1] Using an IPDI means that the surviving spouse is protected (for example, by being able to continue living in the family home) but that the assets are preserved for the testator’s intended beneficiaries after that. A discretionary trust, coupled with a letter of wishes, could provide flexibility, but the inheritance tax (IHT) implications would need to be carefully considered. In blended families, where there might be tension between different branches of the family in the future (even if there is not now), the testator should be encouraged to think about the identity of the executors/trustees, as an independent trustee could be less influenced by family pressures.

Severance of joint tenancies

Wills only cover those assets that pass under them, so advisors should review the ownership of all joint assets and sever joint tenancies where appropriate.

Assets that do not pass under the will

Pensions and life insurance policies do not usually pass under the testator’s will but the testator should take them into account when deciding what to include in their will. Practitioners should discuss these assets with the testator to ensure that the testator understands where the devolution of those assets is subject to the discretion of third parties, such as for pension trustees.

Any letter of wishes accompanying the testator’s will should refer to these assets to explain why the will has been prepared in the way it has.

IHT for unmarried couples

Asset protection considerations should not overlook IHT planning. For unmarried couples, the lack of spouse exemption from IHT means that an IPDI could lead to IHT being paid twice: on the first death and then on aggregation in the estate of the surviving partner.

A fully discretionary trust of residue could avoid this potential double charge, although ongoing charges under the relevant property regime will need to be managed. Also to be considered is the loss of the residential nil-rate band (as any qualifying residential interest owned by the first to die will not be ‘closely inherited’ where property is left to a discretionary trust).

Section 144 of the Inheritance Tax Act 1984 can be used within two years of the first death to ‘reorganise’ the estate of the first to die, so as to produce a structure that is as efficient for both IHT and asset protection as possible. It is crucial that action is taken soon after the first death. The testator’s wishes should also be set out in a detailed letter of wishes to the will and, again, an independent or professional executor/trustee may be appropriate.

Who are the beneficiaries?

Practitioners must carefully consider who is included in a class of beneficiaries in a will. The cases of Reading v Reading[2] and Marley v Rawlings[3] confirm that words are interpreted looking at the ordinary meaning of a word, the context of the will, common sense and facts known or assumed by the testator when the will was prepared. Practitioners can avoid the issue arising by being precise. For example, rather than referring simply to ‘grandchildren’, take instructions as to whether this should include step-grandchildren and set it out clearly in the will.

Beneficiaries may be transgender, non-binary or conceived through medically assisted means or surrogacy. Again, consider the definitions and wording used in the will to ensure the testator’s wishes are clear, even where this is not currently an issue.

Combatting claims by stepchildren/children of the first marriage

Children and stepchildren are entitled to challenge their parent’s or stepparent’s will on various grounds. In the authors’ experience, the most commonly alleged grounds are lack of testamentary capacity, lack of knowledge and approval of the contents of the will and undue influence by a third party (typically allegations against second spouses of the deceased). Estates passing on intestacy can also be challenged, often on the basis that the deceased executed a will that provided for the children/stepchildren of the deceased, which has not been proven.

The 1975 Act

Section 1(1)(c) of the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act) allows children (whether adults or minors) to claim for reasonable financial provision for their maintenance from a parent’s estate. Stepchildren are entitled to claim this if they can establish standing under s.1(1)(d) of the 1975 Act (broadly where they have been treated as a child of the deceased). This includes adult stepchildren, stepchildren who have not lived with the deceased and stepchildren who have never been maintained by the deceased.

In Higgins v Morgan,[4] the stepson, Barrie, claimed against his stepfather’s estate, which passed on intestacy to the deceased’s distant cousins. Stepchildren are not entitled to a share of an estate under the intestacy rules. Barrie was in a poor financial position and made a claim for reasonable financial provision on the basis that the deceased had acted in the role of parent; Barrie was treated ‘as a child of the family’; the deceased was financially providing for Barrie at the time of his death, which resulted in a ‘moral obligation’; and he demonstrated a need for maintenance. The England and Wales High Court made an award to Barrie.

Mutual wills

Mutual wills arise where there is an irrevocable agreement between two parties (commonly spouses) that they will not change or revoke their identical wills after the first death. Where the survivor subsequently changes their will, their executors will hold the estate on the terms of the previous mutual will. Mutual wills are different to parties signing identical (or mirror) wills, where there is no such binding agreement.

In McLean v McLean,[5] a husband and wife executed mirror wills in 2017, which left their respective estates to each other on the first death. On the second death, the estate was to be split equally four ways between the husband’s three children and the wife’s child. The wife survived her husband and changed her will in 2019 to benefit only her child, excluding her husband’s three children. The husband’s children argued that the 2017 wills were mutual wills so the wife was not entitled to change her will. The court found that although the spouses had the common intention to provide for all the children, the issue of mutual wills was not discussed and there was no evidence of a ‘legally binding agreement’ not to change their wills. As such, the wife’s 2019 will was valid and the husband’s children received nothing.

Mutual wills are rare and unpredictable. If a testator wishes to use a mutual will to provide for their blended family this should be reflected in the drafting and one must advise on the consequences of the agreement. For many reasons though, it is far preferable not to rely on this somewhat uncertain doctrine and to incorporate appropriate drafting to cover all eventualities, as discussed above.

Proprietary estoppel

Proprietary estoppel claims involve the enforcement of a promise made to the claimant in respect of property or land that is later reneged on, usually that the claimant will inherit the asset. Where the claimant relied on this promise to their detriment (for example, working for low wages in a family business after a promise that they would inherit the business), they can bring a claim for proprietary estoppel.

The level of relief for proprietary estoppel was considered in Guest v Guest,[6] which held that the appropriate remedy is to give effect to the claimant’s expectation rather than to compensate for the detriment suffered. The promisor is held to their promise even if the transfer of the property/land is disproportionate to the financial detriment suffered by the claimant.

Although any promises are usually only verbal, if practitioners are aware that their client is relying on such a promise, they should advise the client to obtain confirmation in writing from the promisor. They should also be encouraged to make careful contemporaneous notes of the facts to try to avoid the cost and uncertainty of a future proprietary estoppel claim.

Conclusion

Blended families give rise to many complex issues, but planning can reduce the risk of a testator’s wishes not being followed or facing a challenge. Advisors should discuss all eventualities, even if they do not currently seem relevant, and reflect the instructions clearly in the will. If, despite this, a challenge is brought, advisors should prepare for their file to be examined as part of any proceedings. Therefore, keeping careful records of one’s discussions and instructions is crucial.