The Brady Bunch Factor

“These days it is so common for individuals to have successive significant relationships, such as second or third marriages or de facto relationships, during their lifetime. This often results in couples each having children from previous relationships and assets held in any combination of joint and/or sole ownership.

In these situations, it is vital to obtain advice on your estate planning, to avoid the sometimes surprising consequences of a blended family. A common example to illustrate is as follows.

Rose and Jack marry in their early 40s, both having previously been married and had children with their original partners in their early 20s. Rose has two children, Rebecca and Joanna. Jack has three children, Matthew, Craig and Mitchell. The children are now adults. Jack’s’ two youngest sons, Craig and Mitchell, do not accept Rose and have been distant with Jack since the marriage.

Rose and Jack own a house together in Peregian Beach and have a joint bank account attached to a small mortgage. They also have individual bank accounts in their own names, as well a car each, some investments in their own names and superannuation accounts. Their intention is for the Peregian Beach house to go to each other with their superannuation entitlements to pay off the mortgage and everything else to pass to their respective children separately.

Tragically, Jack passes away on his 50th birthday in a car accident. He has a homemade will leaving the Peregian Beach house to Rose, and the rest of his assets to his three children Matthew, Craig and Mitchell. Jack doesn’t have any nomination on his superannuation account.

Rose is also injured in the accident and suffers severe head injuries which, despite a good recovery, have meant she has problems with her memory. Rose’s eldest daughter, Rebecca, is acting as Rose’s Enduring Power of Attorney.

Jack’s home-made will names his eldest son Matthew as his executor. Craig and Mitchell do not like that Rose has been left the Peregian Beach House. They decide to bring Family Provision claims (FP Claims) against Jack’s estate seeking further provision from the estate.

As Jack and Rose owned the Peregian Beach House as tenants in common, Jack’s share of the property will form part of Jack’s estate and be in jeopardy if Craig and Mitchell’s claims are successful. As Jack did not have a binding death beneficiary nomination (BDBN) in favour of Rose, his sons are able to apply to the superannuation fund to also seek a share of those funds directly. Further, Matthew is able to apply for a share of the superannuation funds on behalf of the estate, which if successful, would mean these funds would go into the residue part of the estate going to the three sons rather than Rose.

Angered by the actions of Craig and Mitchell, Rebecca and Joanna also make claims on Jack’s estate for further provision (i.e. “FPA claim”). They are entitled to do so as step-children of Jack.

Rose is now at risk of losing her home and becoming financially vulnerable without Jack’s superannuation funds to repay the mortgage still in her name, and the medical bills piling up. The five children are at war with each other and diminishing the value of Jack’s estate which is funding the costs of the ongoing heated legal battles.

The above situation need not have arisen if Rose and Jack had sought appropriate legal advice for their estate planning early. Had they taken this step, they would likely have been made aware of the potential risks and been given options as to how best to structure their assets to minimise those risks, such as:

• purchasing or changing the ownership of the Peregian Beach property to joint tenants rather than tenants in common;

• holding funds in joint accounts, which has the effect of taking them out of a person’s estate in the first instance;

• preparation of BDBNs for their superannuation;

• use of testamentary discretionary trusts to control ownership of assets; and

• preparation of material addressed to the respective children setting out the reasons for the gifts made in their will.