Estate planning for clients with blended families
The number of families in the UK continues to grow. According to the Office for National Statistics (ONS), there were 19.4 million families in 2020. This was an increase of 1.4% on the previous year and a 7.4% increase over the decade from 2010 to 2020.
In addition to the growing number, the nature of these families continues to become more complex. Four out of every ten British marriages are expected to come to an end before their twentieth anniversary according to research by Ortiz-Ospina and Roser. This is mainly because of divorce but sometimes through bereavement. Of those whose marriages come to an end, half will go on to marry again.
The result of all of this is an ever-growing number of blended families. Whilst these types of clients may initially appear challenging, they come with a great opportunity to build estate plans that work in the best interests of each family member.
What are blended families?
A blended family is one where partners are raising a combination of children from previous and present relationships.
Many blended families face complex estate-planning challenges with issues commonly arising between spouses and/or children.
Typically, an individual would want to provide for their spouse as well as any children, whether they be from a previous relationship or one that is still ongoing. In some cases, they may also want to provide for the children from their partner’s previous relationship.
Are blended families common in the UK?
Blended families continue to become more common across the UK. The main driver of this is a steadily increasing divorce rate.
In 2019 there were 108,000 divorces of opposite-sex couples, an increase of 18% from 2018. In addition, the average duration of a marriage at the time of divorce was 12.3 years for opposite-sex couples, a small decrease from 12.5 years in the previous year.
This trend is also becoming more noticeable among same-sex couples. There were 822 divorces among same-sex couples in 2019, nearly twice the number in 2018 and a significant jump from the small numbers seen the year after legislation that allowed same-sex couples to marry was introduced in 2014.
Adding to the complexity of estate planning following a divorce, almost half involve children under 16 years old. As a result, special measures must be taken to ensure that all the relevant family members are considered as part of any estate planning.
My client already has a will in place. Will it still be valid?
If your client’s existing will was made during their first marriage, there is a good chance it is no longer fit for purpose.
If your client had appointed their former spouse as an executor of their will, that appointment will have been cancelled. In addition, any gifts that your client had left their spouse will need to be reviewed.
Similarly, your client may also find their will has been rendered invalid if it was prepared after their divorce but prior to getting remarried. Unless the new will was written ‘in contemplation of marriage’ to their present spouse, it would automatically become invalid on their wedding day.
Therefore, unless they have written a new will since their remarriage, it is highly likely your client is “intestate”.
What estate planning strategies can help blended families?
There are two highly common needs amongst blended family clients and their advisers.
The estate planning solution must be flexible enough to protect their legacy for every beneficiary, regardless of if they are from an existing or a previous relationship. In addition, the vast majority, understandably, do not want to give up control of their capital in their lifetime.
At Stellar, we offer a range of Inheritance Tax (IHT) Services that give advisers the ability to mitigate their clients’ IHT liabilities after only two years. We exclusively invest in activities that qualify for Business Relief (BR), helping advisers to guide their clients on how to create a legacy that supports all of their beneficiaries.
One of these services is the Stellar ITS. This is a discretionary managed service designed for investors who wish to leave a legacy that is free from inheritance tax.
When your clients invest in the Stellar ITS, we set up a discretionary portfolio in their name. This portfolio in turn invests in a range of qualifying business activities through IHT Companies, ranging from Commercial Forestry to Hotels. These activities offer security and diversification, whilst seeking capital growth, in addition to qualifying for BR.
Your clients will become beneficial owner of the shares, which are held through a nominee, so that they keep control of their capital. All of these qualifying business activities are carefully selected for both their low-risk characteristics and ability to generate capital growth.
Your clients and their beneficiaries, regardless of their connection to the client, should benefit from 100% inheritance tax relief. This is provided that the portfolio is held for a minimum of two years, and at the time of death.
To find out more about the Stellar ITS, click here to visit our dedicated webpage or contact a member of our expert team today on 020 3195 3500.
Written by Jack Dobinson
Stellar Asset Management Limited does not offer investment or tax advice or make recommendations regarding investments. Prospective investors should ensure that they read the brochure and fully understand the risk factors before making any investment decision. The value of investments and the income from them may fall as well as rise and is not guaranteed. No assurance or guarantee is given that any targeted returns will be achieved. Forecasts of potential future results are not a reliable indicator of actual future results.
Stellar Asset Management Limited of 20 Chapel Street, Liverpool, L3 9AG is authorised and regulated by the Financial Conduct Authority.