Succession planning, or ‘bloodline’ planning, can be particularly important for blended families, where a couple have a child or children from previous relationships. Typically there are a number of considerations to take into account.
You may wish to leave certain family and personal assets to your own children and grandchildren, or protect your family assets from future bankruptcy, or in the event of a divorce, or remarriage of a former spouse following death. Planning will also be dictated by the age of your children and step-children, and whether they are likely to be dependent at later life stages.
Making a will
An initial priority should be instructing a will and ensuring it remains up-to-date, as this details your requirements for your beneficiaries. If you own a property jointly with your partner you may want to consider whether this should be held as joint tenants, or whether a tenants in common approach is appropriate. In both cases the property forms part of the estate. Under a joint tenancy arrangement the property would automatically go to your surviving partner, whereas under a tenants in common arrangement ownership is dictated by the will in the event of death.
Having an accurate and up-to-date will is especially important where a blended family is concerned. If a will is not in place, your assets will be shared under so-called ‘intestacy laws’. A surviving spouse would typically be the beneficiary of a significant proportion of your assets in such a situation, and in turn your stepchildren would be in line to inherit your spouse’s estate, meaning your own children could be ‘locked out’ of a large part of their potential inheritance.
Use of available allowances
The threshold above which inheritance tax (IHT) is payable is £325,000. This allowance, known as the nil-rate band, is transferable to a spouse/civil partner on death, giving couples a potential combined nil-rate band of £650,000. If the beneficiaries of the family home are children/grandchildren, you may be able to use the main residence nil-rate band (RNRB) of £175,000 per person. This can boost the total IHT threshold for a married couple or civil partners to £1,000,000.
Reducing IHT liabilities with Business Relief
Legacy and succession matters are often pushed down the road and left to a ‘more convenient’ date, due to the emotional barriers involved in dealing with the subject. This problem is often exacerbated among blended families, where there can be additional sensitivities with both your own children and step-children in the picture.
When the planning horizon is shorter, Business Relief may offer individuals with large estates a way of investing that can lower potential IHT liabilities, as it only requires a holding period of two years (as opposed to the seven-year gifting rule). Those investing in Business Relief solutions should have a high risk tolerance for this portion of their wealth. Placing this qualifying investment into trust can then also be considered.
Trusts as a planning tool
Trusts can play an important role in estate planning for blended families. Setting up trusts can protect assets and ensure they are passed on to your chosen beneficiaries. There are a range of trusts to suit different planning needs, including discretionary trusts, which can provide added flexibility. You should look to appoint reliable trustees and ensure they have a clear understanding of the structure and designated beneficiaries.
It is important to start planning as soon as possible, as pushing important decisions into the long grass may result in your direct descendants receiving nothing from your estate. Find out more by calling 03300 564 446, or get in touch using our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
