Blended Families: Protecting your loved ones... Presented by: - - PowerPoint PPT Presentation

Blended Families: Protecting your loved ones...

September 2018 Presented by: Caroline Eaton Family Solicitor Jennifer Nash Wills, Trusts and Probate Solicitor

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Agenda

Caroline:-

• What is a Blended family?
• Cohabitation agreements and Declarations of Trust
• Pre-nuptial agreements
• What happens when a relationship breaks down?

Jennifer:-

• Inheritance – the difference between married and

unmarried couples

• Estate Planning – what challenges do blended families

face?

• Updating your Will - protecting your own children and

providing for your new spouse

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Modern Family Life – the Stats

• There were 12.7 million married or civil partner couple

families in the UK in 2016.

• This was the most common type of family, although

rates declined from 53.4% in 1972 to it’s lowest rate of 50.7% in 2011.

• However, the numbers are steadily rising again.

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Modern Family Life – the Stats

• Cohabiting couple families were the fastest growing

family type between 1996 and 2016, with the numbers more than doubling

• 1996 – there were 1.5 million couples living together
• 2015 – this had risen to 3.3 million

https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/families/bulletins/fa miliesandhouseholds/2016

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What is a blended family?

• One couple may have children together, and children

from previous marriages or relationships

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What is a blended family?

So what issues to we need to think about?

• People are getting married later and may have accrued their own

assets before the relationship – they may want to protect those assets.

• There may be children from previous relationships – parents may

wish to protect their assets, or some of their assets, for their children.

• They may want to make some provision for their partner going

forward.

• They may have been through a divorce or relationship breakdown

before, and might want to avoid the uncertainty and stress again.

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Meet Rod…

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Meet Rod…

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Marriage #1 – Rod & Alana

• Married in 1979 and divorced in 1984
• Two children together – Kimberly and Sean

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Marriage #1 – Rod & Alana

The assets;

• Alana moved in with Rod to his solely owned home.
• They decided to set up a joint account for bills.
• Rod accrued savings of £400,000 during the marriage.
• Alana stopped work to look after Kimberly and Sean. She

stopped paying into her pension at this point.

• Rod had an annual income of £200,000.

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Rod & Alana divorce…

So what happens when there is a divorce? Couples automatically receive financial claims against each

• ther upon marriage.

Claims in regards to;

• Income – maintenance, capitalised lump sums etc.
• Property – sale, transfers, deferred sale etc.
• Pensions – sharing, offsetting.

Years of cohabitation are taken into account.

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Rod & Alana divorce…

Matrimonial Causes Act 1973.

• The starting point is an equal division of all assets, including those in

sole or joint names.

• This is only a starting point, and in order to achieve something that
• verall is fair to both parties, all the circumstances of the family are

taken into account.

• Family assets will usually be shared, sold or transferred upon a

divorce.

• Negotiation, mediation, Court action.
• Wide range of discretion

EQUALS UNCERTAINTY

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Rod & Alana divorce…

So what may have happened to the assets?

• Alana had a legal interest in the family home, despite it being

solely owned by Rod. She stayed in the house whilst the children were young, and on sale the proceeds were divided 50/50.

• The joint account was divided equally.
• Rod’s savings were divided equally.
• There was a pension sharing order transferring a % of Rod’s

fund to Alana.

• Rod paid spousal maintenance to Alana for 14 years.
• Rod pays child maintenance for Kimberly and Sean until they

reach 18 years or finish full time secondary education.

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Cohab #1 – Rod & Kelly

• Rod met model Kelly Emberg and they started a

relationship in 1983 (note the overlap….)

• Their daughter, Ruby Stewart, was born in 1987.
• Rod and Kelly did not marry.
• The separated in 1990.

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Cohab #1 – Rod & Kelly

The assets;

• Kelly moved in with Rod to his solely owned home.
• They decided to set up a joint account for bills.
• Rod accrued savings of £800,000 during the relationship.
• Kelly stopped work to look after Ruby. She stopped

paying into her pension at this point.

• Rod had an annual income of £500,000.

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Rod & Kelly break up…

As an unmarried couple, when did Rod & Kelly acquire financial rights from each other?

• If they bought property together?
• When Ruby was born?
• After a certain number of years?

When do cohabitees become Common Law husband and wife?

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• Q. When do cohabitees become Common Law

husband and wife?

• A. They don’t!

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Rod & Kelly break up…

What happened to the assets?

• Kelly has no legal right of occupation of Rod’s house, and she does not have a

legal interest. She has to move out and she is not entitled to any equity.

• She receives 50% of the joint account.
• Kelly has no interest in Rod’s savings account.
• Kelly can make no claim against Rod’s pension.
• Kelly cannot get spousal maintenance.

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Rod & Kelly break up…

What can Kelly do?

• Kelly makes a claim under Schedule 1 of the Children Act 1989.
• Rod buys a house for Kelly and Ruby to live in. When Ruby turns

18, the house reverts to Rod in full and Kelly has to move. She has no legal interest in the equity in the house.

• Rod pays child maintenance.

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Marriage #2 – Rod & Rachel

• Rod and Rachel Hunter marry in 1990 and divorce in 2006
• They have two children together, Renée and Liam.

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Marriage #3 – Rod & Penny

• Rod and Penny marry in 2007, and they’re still together!
• They have two children together, Alistair and Aiden

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So, what are Rod’s (or his partner’s) options…

Rod has a wife, 2 ex-wives, an ex-partner and 8 children by 5 women. “Instead of getting married again, I’m going to find a woman I don’t like and just give her my house” How does he;

• Protect himself?
• Protect his partner?
• Protect his children?

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Cohabitation Agreements

• Very useful in formalising any agreement about the finances.
• Can include arrangements made whilst living together, and what

would happen in the event of a separation?

• This could reduce or eliminate potential arguments in the future as

the intentions and expectations are set out clearly.

• A Cohabitation Agreement can be entered into at any time, before a

couple start living together or if they have been living together for some time.

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Cohabitation Agreements

The Cohabitation Agreement is a bespoke document drafted as a formal deed and signed in the presence of witnesses. The Agreement generally deals with three main areas;

• 1. Who owns (and owes) what at the time of the agreement and

in what proportions.

• 2. What financial arrangements you have decided to make whilst

living together.

• 3. How property, assets and incomes etc should be divided on any

later separation.

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Cohabitation Agreements

What can it cover? Pretty much anything you want. We usually include;

• Property
• Money and bills
• Pensions
• Personal possessions
• Children
• Update and review clauses
• Agreements to make Wills

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Cohabitation Agreements

And if a couple breaks up?

• A Cohabitation Agreement is not wholly legally binding, but is very

persuasive.

• It can be relied upon as evidence of an agreement and may be

very hard to challenge.

• Because all the arrangements had been agreed and incorporated

into a Deed, there may not be a desire to challenge it.

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Cohabiting Couples - Property

In your sole name

Do you want your partner to acquire an interest? Yes Consider transferring the house into joint names* Consider entering into a Cohabitation Agreement No Consider entering into a Cohabitation Agreement

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Cohabiting Couples - Property

In your joint names

Tenants in Common In unequal shares? Declaration

• f Trust

In equal shares? Joint Tenants Equal shares

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Cohabiting Couples – Property

What happens if you separate?

Sole name In the first instance, only the legal

• wner has an

entitlement Other party may have to attempt to establish an interest

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Cohabiting Couples – Property

What happens if you separate?

Joint Tenants 50/50 Can this be challenged?

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Cohabiting Couples – Property

What happens if you separate?

Tenants in Common – unequal shares What does the Declaration of Trust say? Can this be challenged?

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Cohabitating Couples – Property

Establishing an interest in a property can be difficult and very expensive. In very simplistic terms, there are 2 main types of interest; Resulting Trust Contribution

• f capital

Interest can be quantified

Constructive Trust Common intention to share the property Interest will need to be quantified

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Pre-nuptial Agreements

• A Pre-nuptial Agreement (“Pre-nup”) can be drawn up prior to marriage

to confirm the parties’ intentions and arrangements for the finances should the marriage not work out.

• “Contract out” of the Matrimonial Causes Act 1973 and its approach to

the finances.

• A bespoke document confirming what will happen to assets and property

in the event of a marriage breakdown.

• Not wholly legally binding. However, the Court is likely to give effect to a

Pre-nup unless there is a very good reason indicating that the effect of the agreement would be unfair.

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Pre-nuptial Agreements

Requirements: In order to help satisfy the Court that the agreement should be upheld, the following steps should be taken;

• The Pre-nuptial Agreement should be entered into in plenty of time

before the wedding.

• Both parties should undertake the exercise of disclosure and share

their financial information with each other.

• Both parties should receive independent legal advice on the terms of

the agreement and the effect.

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Pre-nuptial Agreements

• Presume the Pre-nup is going to be binding so make sure you get it right –

you may be held to it later on.

• Consider regular reviews and if necessary have an updated Agreement

drafted.

• The arrival of children can often cause a Pre-nup to be set aside, so review

and update.

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Pre-nuptial Agreements

Also remember;

• A Declaration of Trust may need to sit alongside a Pre-nup to

record shares in properties.

• Wills may need to be reviewed and updated – Wills are

revoked upon marriage.

• If there’s no time for a Pre-nup, Post-nuptial Agreements can

be entered into after the marriage has taken place.

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Summary

Get your documents in order! Prevention is better than the cure. Get legal advice Always consider reviewing and updating your documents to ensure they continue to cover your wishes and agreements

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Inheritance – married and unmarried couples

• Unless you have a Will in place, you have very limited control
• f what happens to your assets on death.
• Administration of Estates Act 1925 sets out who will benefit

from your estate – ‘intestacy rules’.

• This is a one size fits all approach which cannot cater for the

vast differences in modern family living arrangements.

• The rules have very different outcomes for married and

unmarried couples.

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Inheritance – married and unmarried couples

Assets you have some control of:-

• Joint bank accounts – pass by survivorship
• Property owned as ‘joint tenants’ – becoming less common
• Life insurance policies & pensions – nominations

Assets you have no control of:-

• Bank and Building Society accounts in your sole name
• Other savings/investments in your sole name
• Property owned as ‘tenants in common’ – becoming more

common

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Inheritance – married and unmarried couples

If you do not have a Will, the assets you hold in your sole name or as tenants in common will pass via the intestacy rules…. If you are married:

• Spouse, no children – all to spouse
• Spouse and children - £250,000 to spouse, ½ remainder to spouse,

remainder equally to children

• Outright gifts with no other protection (eg 2nd marriages, children

with particular needs, etc)

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Inheritance – intestacy rules in practice – married couple

Meet Michael and Catherine…

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Inheritance – intestacy rules in practice – married couple

Michael and Catherine are a blended family. They have two children together, Michael also has a son from a previous relationship:

• Cameron (Michael’s son)
• Dylan
• Carys

They have modest assets (for celebrities!):-

• Their home - £400,000 – held as ‘joint tenants’
• They each have an ISA of £100,000
• Joint current account £20,000
• Total combined assets - £620,000

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Inheritance – intestacy rules in practice – married couple

Michael dies performing a dangerous stunt for his new movie  Catherine inherits all assets as ‘joint tenants’ – the house and current

• account. Catherine will also receive the first £250,000 of everything else –

Michael’s only other asset was an ISA of £100,000 So, Catherine inherits everything. Catherine doesn’t get around to making a Will. When Catherine dies all of her assets pass to her children – Dylan and Carys. Michael’s son Cameron does not inherit anything Lottery as to who dies first.

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Inheritance – intestacy rules in practice – married couple

If the home was owned as ‘tenants in common’? Catherine inherits all assets as ‘joint tenants’ – current account Catherine will also receive the first £250,000 of everything else – so Michael’s share of the property (£200,000), plus £50,000 from his ISA. The remainder of Michael’s estate (£50,000) passes half to Catherine, and half equally between Cameron, Dylan and Carys. Cameron will inherit £8,333 on Michael’s death and nothing on Catherine’s death.

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Inheritance – unmarried couples

No spouse:

• Children
• Parents
• Siblings
• Half siblings
• Grandparents.
• Aunts and Uncles
• Half Aunts and Uncles
• The Crown – Prince Charles the Duke of Cornwall

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Inheritance –unmarried couples

Note – no provision for unmarried or cohabiting couples here Unless there are sufficient assets owned as ‘joint tenants’ – the surviving partner could face financial hardship. Options:-

• Mediation with adult children
• Claim under the Inheritance (Provision for Family and Dependants

Act) 1975

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Inheritance – intestacy rules in practice – unmarried couple

What if Michael and Catherine did not marry and instead were simply cohabitees?

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Inheritance – intestacy rule in practice -unmarried couples

Example 1 Assets:-

• Their home - £400,000 – held as ‘joint tenants’
• They each have an ISA of £100,000
• Joint current account £20,000
• Total combined assets - £620,000

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Inheritance – intestacy rule in practice -unmarried couples

Catherine inherits assets held as joint tenants only – so the house, and the joint current account. Cameron, Dylan and Carys inherit the ISA of £100,000 (£33,333 each) On Catherine’s death, everything in her estate will pass to Dylan and Carys – the £400,000 house, the £20,000 current account and her ISA

• f £100,000

So, in this example Cameron will inherit slightly more than if Michael and Catherine had married. In this scenario, Catherine should be ok. Dylan and Carys will be the over all ‘winners’ with regards to

• inheritance. Cameron gets very little in comparison.

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Inheritance – intestacy rule in practice -unmarried couples

Example 2 Assets:-

• Their home - £400,000 – held as ‘tenants in common’
• They each have an ISA of £100,000
• Joint current account £20,000
• Total combined assets - £620,000

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Inheritance – intestacy rule in practice -unmarried couples

Catherine inherits assets held as joint tenants only – so only the joint account. Cameron, Dylan and Carys inherit the ISA of £100,000 and Michael’s share

• f the house (£200,000)

Catherine’s security in the home now rests with the behaviour and attitude of Cameron, Dylan and Carys. Catherine’s security is in danger if:-

• Cameron, Dylan or Carys demand their share
• Cameron, Dylan or Carys are made bankrupt or go through a divorce
• Cameron, Dylan or Carys require full time care (eg accident)
• Cameron, Dylan or Carys die

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Inheritance – summary – on Michael’s death

Married – ‘joint tenants’ Married – ‘tenants in common’ Unmarried – ‘joint tenants’ Unmarried ‘tenants in common’ Catherine Everything House, current account & £50,000 from ISA House and current account Joint account

• nly

Cameron Nothing (at all) £8,333 from ISA £33,333 from ISA £33,333 from ISA and 1/3 of Michael’s share

• f the house

Dylan & Carys Nothing (yet) £8,333 each from ISA £33,333 each from ISA £33,333 each from ISA and 1/3 each of Michael’s share of the house

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Inheritance – summary – then on Catherine’s death

Married – ‘joint tenants’ Married – ‘tenants in common’ Unmarried – ‘joint tenants’ Unmarried ‘tenants in common’ Cameron Nothing from Catherine’s estate – step children are not beneficiaries under the intestacy rules Dylan and Carys One half each of everything One half each

• f the house,

Catherine’s ISA, remainder of joint account, remainder of the £50,000 from Michael’s ISA House, Catherine’s ISA, remainder of joint account Catherine’s share of the house, Catherine’s ISA, remainder of joint account

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Inheritance – summary – overall inheritance if Michael dies first and Catherine dies second

Married – ‘joint tenants’ Married – ‘tenants in common’ Unmarried – ‘joint tenants’ Unmarried ‘tenants in common’ Overall combined estate = £620,000 Cameron £0 £8,333 £33,333 £100,000 Dylan and Carys £310,000 each £305,833 each £293,333 each £260,000 each

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Inheritance – married and unmarried couples

What can you do? Make a Will!

• A properly executed Will allows you to:-
• Take control
• Decide who inherits your estate
• Protect assets for your family
• Making a Will can give you the peace of mind of knowing your

estate, possessions and your family will be taken care of as you wish.

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Estate Planning – What challenges do blended families face?

• Often, the largest asset a couple owns is their home.
• How does the couple ensure that the survivor of them has a roof over

their head for the remainder of their lives, while also making sure their children inherit something in the future?

• How does the first to die protect their share of the assets from:-
• Remarriage
• Fall outs with the children
• Care fees

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Making a Will - examples

What can Michael and Catherine do to ensure equality between their children? How can they use their assets to provide security for the survivor of them while also protecting inheritance for the children? Reminder - the biggest asset they

• wn, by far, is their house.

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Making a Will – Not so clever planning - example

Option 1 - simple mirror Wills Michael and Catherine leave everything to each other outright. When the second of them dies, their Wills state that the remaining assets are to be divided equally between all three children. Simple and easy to administer, but will only work if their circumstances do not change. What if:-

• Catherine and Cameron fall out and she cuts him out of her Will?
• Catherine remarries?
• Catherine needs long term care and uses the majority of the

combined estate to fund this?

• Catherine goes on a spending spree?

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Making a Will – clever planning - example

Option 2 – Life Interest Trusts – house only

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Making a Will – clever planning - example

Option 2 – Life Interest Trusts – house only Michael and Catherine provide one another with a “life interest” in the half share of the home belonging to the first of them to die. If Michael dies first, Catherine has the security of living in the property rent free for the remainder of her life. On her death, Michael’s share is divided equally between his three children. The half share of the property is protected from Catherine’s potential fall out with any of the children, remarriage, excessive spending, and/or care fees. Whatever Catherine does with her own assets or Will in the future, all three children at least get something.

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Making a Will – clever planning - example

Option 3 – Flexible Life Interest Trusts – all assets owned in sole name and shares of assets held as tenants in common Michael and Catherine provide one another with a “flexible life interest” in their share of all of their own assets (half share of the house, and ISA in sole name).

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Making a Will – clever planning - example

Option 3 – Flexible Life Interest Trusts – all assets owned in sole name and shares of assets held as tenants in common If Michael dies first, again Catherine has the security of living in the property rent free for the remainder of her life. In this scenario, potentially Michael’s £100,000 ISA is also preserved for the three children, subject to Catherine’s needs.

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Making a Will – clever planning - example

Option 3 – Flexible Life Interest Trusts – all assets owned in sole name and shares of assets held as tenants in common On Catherine’s death, whatever is left in the trust passes equally to the three children. This type of trust usually works better for those with a higher level

• f assets, those where the family home is not the main/biggest

asset, or those who do not own an interest in a property.

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Making a Will – clever planning - example

Important: the inheritance tax position between married and unmarried couples is very different so ensure you take legal advice when making your new Wills.

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Making a Will – clever planning

By making Wills and building in some form of protection above the “simple mirror Will” option, Michael and Catherine are able to cleverly utilise their modest assets to provide security for each

• ther for the remainder of their lives whilst also protecting assets

for the ultimate benefit of the children.

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Summary…

Get your affairs in order! Take legal advice Ensure you have a valid Will, that your Will is up to date, and that it protects your family

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Thank you…

01603 693500 info@clapham-collinge.co.uk www.clapham-collinge.co.uk