It’s trite to say that there’s no such thing as a traditional family anymore. In truth, we are not sure there ever was. Every family is unique, and throughout history there are countless famous examples that show that every family has its patriarchs and matriarchs, successes, failures, winners and losers, loves and losses. It’s just that some are more pronounced than others, some more famous than others.
But when you drill down into any family, there are complexities, subtleties and interesting dynamics. Sometimes it’s between siblings who envy what the others have, or between spouse and ex-spouse, grandchildren who are treated unequally or family members split down partisan lines following a decades-old dispute.
Every family needs to be assessed for their uniqueness when you are looking at succession planning. There is real risk in trying to use a cookie-cutter approach and impose a plan that worked well for one family on another, unless there are enough similarities to make it work.
Part of working out the uniqueness is to ask questions. Probing and sometimes difficult questions, and not just rely on the first rote answer that comes out.
Navigating the modern family
One of the most challenging environments in succession planning is for modern families. The exemplar of the modern family is the blended family, with current spouses and possibly de facto spouses, children from first and other marriages of both spouses sitting alongside children of the new union.
These are particularly complicated because there is a need to balance provision properly and adequately for such a raft of competing interests. A spouse has a primary obligation to make sure their spouse is looked after, but also to children.
That is less complicated if the spouse is the natural parent of the children, but if the spouse is only a stepparent, there is much less attachment to the idea of guaranteeing that they will also look after those same stepchildren 10, 20 or 30 years into the future, the way a biological parent would.
Striking the right balance
There is a clear need to make sure the new spouse is looked after (otherwise they may challenge the Will) as well as the children from the first marriage, who often do not share the same affection for their new stepparent.
The answer here is often to use Testamentary Trusts. A useful device is to put the family home into such a Trust, to make sure the surviving spouse has a guaranteed roof over their head, for life, and then for that house to fall back to the children when he or she is finished with it.
An additional element commonly woven into this structure is to allow that house to be sold in the future, and the funds used to acquire an accommodation bond in an aged-care facility, for example. Those funds likewise come back to the children when the spouse has died. This sort of long-term thinking is essential in structuring a good Will.
While this sort of structure means the value in the family home may be tied up and being used by the surviving spouse for decades, at least it ensures value comes back to the children eventually. The alternative, used in the past with great failure rates, is to simply leave the house to the surviving spouse and hope and pray that he or she follows through in their own Will decades later.
(Hint: it never does, too many things happen in the meantime – new marriages and partners which means they must now make provision for their new spouse, new children, new stepchildren, losing assets through poor investments or wild spending necessitating sale, or just deciding to sell up and give everything to their favourite niece.)
Claims by stepchildren
An additional factor with blended families is that stepchildren can also bring inheritance claims.
In WA, stepchildren can make a claim against an estate in two ways. The first is if they were being maintained by the deceased, actively supported at the date of death, and the second is if the stepchild’s own biological parent dies leaving assets to their stepparent.
This second type of claim requires an amount of value to pass to the stepparent above a certain threshold, currently $517,000—but as it’s set by regulation, it can, and will increase over time. That means if I die and leave more than this amount to my children’s stepmother in my Will, my own children can challenge it.
But the key here is that I leave it in my Will, so if I own the home with my new spouse jointly, it’s not in my Will as it automatically passes to the joint owner by survivorship, no matter the value of it. Similarly, if I leave all my superannuation to my new spouse by way of a Binding Death Benefit Nomination, that does not go into my Will, so even if it’s millions of dollars my children cannot challenge it.
Read more about stepchildren and their inheritance rights here.
Planning around intent
And that might be exactly what I want to happen—for my new spouse to get all those assets outright, with no challenge. But in doing this, I may not have left much, or indeed anything, to my own children, and I rely entirely on my new wife’s good graces to leave them anything from her Will when she eventually passes on, which could be 40 years from now.
There is a special type of Will that can be employed here, called a Mutual Will, or sometimes known as a Contractually Binding Will. These are quite rare, because as the name implies, they are binding.
With these sorts of Wills, a matching pair usually of the couple, they enter into a contract with each other to follow through once one has died. For instance, a Mutual Will contract can say I leave you everything, darling, provided you in turn leave everything I have left you to my own bloodline children when you die.
Why mutual Wills need precision
It sounds simple but these sorts of Wills are very complex and require a deft touch in drafting. The trick is to keep all the terms in a contractual format, because a contract does not get revoked when someone remarries, as a Will does.
But if I die, leave everything to my spouse and she then remarries, then any Will she has made is revoked. What my children are left with is not a Will that looks after them, but the right at law to enforce the terms of the contract. Which means litigation if the surviving spouse wanted to try to circumvent their obligations.
Even with a contractually binding Will arrangement, we still recommend the use of Testamentary Trusts to ensure certain assets are protected for future generations.
The role of family conversations
In these scenarios the family dynamics can require round-table conversations with all members to thrash out the terms of the deal. Sometimes that is too unpleasant a thought and it ends up just being the parents alone. There is no one right or wrong way to approach this; it depends greatly on the particular tolerances and personalities of the family.
Sometimes the meeting is with the parents and only one adult child, who represents the rest of the group and carries their views. But a constant element of all successful meetings of this sort is honesty, frankness and mutual love and affection.
Without these, the group meeting is probably destined to devolve into a shouting match or tears, and in worst cases, can actively stymie effective estate planning as a group, sending the Will maker off to do his or her own succession planning without any interference.
The value of advisors
Advisors can play a very important role here. They come with often deep knowledge of the personal and financial make-up of the key players and we find it valuable to have them run the meeting, set it up and lay the groundwork.
This also means the lawyer coming in over the top can be quite neutral and dispassionate, telling the family how he or she sees it playing out and forecasting the grim eventualities of not getting it right. The neutral lawyer can also help dispense with some of the myths family members come into the meeting with.
A myth many adult children of a parent who has remarried come with is that children from a first marriage come first, embodying a sort of antiquated idea of primogeniture, or inheritance similar to that in some Royal families where bloodline supersedes all.
Sadly for the children, this is not automatically the case. But it might be, dependent on the particular aspects of the family. For example, if I remarry and my new spouse is independently wealthy, with her own house and income and assets, and is not in any need of what meagre provision I could make for her from my assets, then my obligation to leave her anything is enormously reduced.
Similarly, if my adult children are not well off and in great need, even if my spouse is not wealthy in her own right, I may still have an obligation to look after the kids too.
When business is involved
Where the family is in business together, or a rural family running a farm together, the need for the group conversation is paramount. If there is resistance from any family member to do this, do persevere. And again, we can assist here in taking charge to ensure this is done right.
This is because where there is a joint endeavour, where a family is working together in an enterprise, it cannot be said to truly be the sole asset of the head of the family—even if that one head of the family is the legal owner or sole controller of the company or Trusts.
In reality, all family members who work in the business or on the farm are members of the enterprise, and are likely to have some sort of equitable ownership of that business by virtue of their labour and in reliance on promises made over many years.
So to ignore other effective co-owners and dictate a succession plan which is then handed down as a Judge hands down their judgment in court, is folly. It won’t succeed because it won’t contemplate all the other vested interests.
Truth, tolerance and transparency
Group meetings for these sorts of families are essential, even though they can be tough discussions to have. Because these meetings reveal all the truths that lay under the surface, and it’s only then that all the fibres can be woven together into a succession plan that gives everyone what they need.
Managing larger estates and family offices
Another more common aspect of complex family dynamics in estate planning is the Family Office. Increasingly common in WA for our wealthiest families, the Family Office is essentially the business that controls the wealth, invests it and makes key decisions, also usually deciding how to make distributions of income and capital each year to what can be a very large number of beneficiaries who are supported by the wealth.
The Family Office often has its own CEO and staff who can offer priceless support and wisdom to the succession planning.
To quote the famous late rapper Notorious B.I.G, “Mo money, mo problems”. The greater the wealth of the individual or the family group, the more complicated the succession planning inevitably gets.
Multiple businesses, multiple Trusts and companies, investments spread nationwide or even internationally and with enormous amounts of tax hinging on certain estate planning decisions, intersects with the other usual complexities such as complex family dynamics and other tensions and means the job is harder.
But there is no such thing as too hard—it’s just a question of applying the right amount of thought and energy to uncover the detail, put it all on the table like a giant puzzle, and then work out how to make it fit together to create the perfect plan, and the perfect tomorrow.
Business or rural family enterprises
Where the family is in business together, or a rural family running a farm together, the need for the group conversation is paramount. If there is resistance from any family member to do this, do persevere. And again, we can assist here in taking charge to ensure this is done right.
This is because where there is a joint endeavour, where a family is working together in an enterprise, it cannot be said to truly be the sole asset of the head of the family – even if that one head of the family is the legal owner or sole controller of the company or Trusts. In reality, all family members who work in the business or on the farm are members of the enterprise, and are likely to have some sort of equitable ownership of that business by virtue of their labour and in reliance on promises made over many years.
A future you can rely on
Every family has its own dynamics, and modern succession planning must reflect that reality. Whether you’re in a blended family, have significant business assets, or just want peace of mind that your wishes will be carried through, your plan should be as unique as your family is.
At Solomon Hollett Lawyers, we specialise in guiding families through these complexities. If this article has resonated with your own situation, or if you’re unsure where to start, we invite you to get in touch.
Let’s help you build an estate plan that not only preserves your legacy but brings clarity and confidence to those you care about most.
