In today’s world, families take all shapes and sizes. If you married and had children in your twenties, by now you could have a blended family, with adult children and a new spouse you share your life with.
Alongside reaching your personal goals, you may have also met your financial objectives – or even surpassed them, accumulating significant wealth and sharing it with those you love.
Now, as you get older, you might be thinking more and more about how you want to provide opportunities for the next generation.
Having a blended family can make the estate planning process a little more complex. FTAdviser reports that will disputes reached an all-time high in 2021, which could indicate the importance of paying close attention to your estate plans as early as possible.
One little-reported issue some blended families might face when passing on wealth is that of “sideways disinheritance”. This phenomenon can be both financially and emotionally harmful to blended families and can lead to disputes down the line.
Read on to learn what sideways disinheritance is, how it could affect your family, and ways to protect your wealth and loved ones from this eventuality.
Sideways disinheritance could mean your children lose out on some or all of their inheritance
Sideways disinheritance refers to when someone who has children from a previous relationship remarries after the death of their partner or spouse, inadvertently disinheriting their children and denying them of their inheritance.
If you are separated from your children’s other parent and have remarried, you now share your wealth with your new spouse. Normally, your estate will go straight to them when you pass away.
If your spouse then remarries, taking their inherited wealth into a new relationship, your children from your first marriage could be cut off from accessing your wealth when either your ex-spouse or their new partner dies. This can happen for a number of reasons, both accidental and on purpose.
Of course, this situation can be both financially and emotionally painful for your children. They may be anticipating an influx of family wealth later in life, and feel blindsided and hurt by this unexpected form of disinheritance.
What’s more, sideways disinheritance could lead to a lengthy, costly will dispute.
All in all, if you have a blended family similar to the example given, it is extremely important to protect your wealth and avoid sideways disinheritance as best you can.
Fortunately, by working with an expert to put certain appropriate measures in place, you can prepare your family for this eventuality and reduce the risk of sideways disinheritance taking place.
2 ways you can help avoid sideways disinheritance before it’s too late
Establish a trust that clearly designates funds for your children
Rather than leaving all your wealth to be inherited through your will, you could instead consider putting some funds in trusts for your children or chosen beneficiaries.
Not only can trusts help mitigate the amount of Inheritance Tax (IHT) your beneficiaries will pay, but they can also clearly set out your wishes when it comes to how you wish to pass your wealth on.
Indeed, trusts can help avoid sideways disinheritance. Putting wealth in trusts for your children means the funds are controlled by the trustee, who can ensure, even after you’re gone, that your beneficiaries receive the inheritance they deserve.
Some trusts that could help avoid sideways disinheritance are:
- A discretionary trust. This type of trust allows your trustee – a relative, friend, or professional close to you – to decide when and how the funds are distributed to its beneficiaries. If you elect a trustee outside of your immediate family, this person could ensure your beneficiaries receive their inheritance after you are gone.
- An interest in possession trust. These trusts allow you to allocate funds for your spouse to receive when you pass away. Crucially, you can also dictate that once your spouse dies, the income from the trust then passes directly to your nominated beneficiaries – in this case, your children.
- A bare trust. If you wish to keep things simple, you can place funds in a bare trust that is immediately passed to your beneficiaries when you die. So, no matter what your spouse does after you pass away, your children will receive income from the bare trust you have put in place.
I will use an example scenario to illustrate how a sideways disinheritance could happen and how a Life Interest Trust can help. Mr and Mrs Adams have made mirror wills, leaving everything to each other, which then passes onto their son on death of the second person.
After Mr Adams dies, Mrs Adams remarries and she and her new spouse live in the property that Mrs Adams owns outright. She is aware that remarrying revokes a will, so she makes a new mirror will with her new husband, in which they, again, leave everything to each other, and then evenly between her son and her new husband’s three children (from a previous relationship).
When Mrs Adams eventually dies, her entire estate passes to her current husband, in line with the terms of their will. He then makes a new will and disinherits Mrs Adams’ son, leaving everything instead to his three children. Mrs Adams’ son inherits nothing from his parents’ estate.
For a further conversation about using trusts to avoid sideways disinheritance, contact your financial planner today.
Review and update your will with the help of an expert
Of course, one of the simplest and most efficient ways to avoid sideways disinheritance is to regularly review and update your will with the help of an expert.
If you wish, you can designate wealth to be passed immediately to your children when you die, rather than giving your entire estate to your spouse. By giving everyone enough to pursue their own opportunities and live comfortably, you could avoid a difficult will dispute – not to mention familial rifts – in the future.
Your financial planner can help review the terms of your will and ensure everyone you love will receive the inheritance they deserve.
Get in touch
For guidance on estate planning, ensuring that your final wishes are carried out, avoiding sideways disinheritance, and providing the next generation with a wealth of opportunities, email or contact us on 020 7400 4700.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.