Let’s look at three real life examples:
1. A mother dies leaving a husband with four children. Some years later the widower remarries and subsequently becomes ill. He tells his daughter that he has not changed his original Will and still intends his children to benefit. Shortly afterwards he dies, unaware that his Will is automatically revoked upon marriage. Therefore, under the rules of intestacy, and for his level of wealth, his entire estate passed to his widow and his children receive nothing.
2. Geoff’s grandfather died at a young age leaving a widow and one child. She meets a widower with two children. They marry and pool their resources to buy a home. By buying a home together as “joint tenants” the house automatically passes to the survivor irrespective of the terms of a Will. Geoff’s grandmother dies first and the home passes to the stepfather. When he dies everything passes to his children and Geoff’s father receives nothing.
Both of the above examples were completely accidental. However, in both cases the beneficiaries did not wish to share their fortuitous inheritance so the children of the first parent to die received nothing.
3. A mother dies leaving all her estate to her widower. He subsequently marries his housekeeper. He made a will leaving the estate to his second and younger wife believing and trusting that she would leave at least a proportion of it to the children of his first marriage when she died. She didn’t!
There are many situations which can have unforeseen consequences for the children of
the deceased parent, if the estate has been passed to the surviving widow or
widower once they remarry:
If the relationship doesn’t work and they subsequently divorce, then the estate of the deceased’s parent is potentially exposed within the divorce settlement.
If the new couple buy a house together, it may pass to the surviving stepparent automatically on death. Most couples (in England and Wales) own a property together as “joint tenants”. On the death of one of the couple it will pass to the survivor and not the children of the deceased.
The surviving parent leaves his/her original will in place thinking that they will be leaving their estate to their children on the death of the surviving spouse, unaware that by remarrying they have automatically revoked their original Wills.
The new spouse may persuade the parent to make a new Will in favour of him/her often telling them that they will “look after the children of the first marriage”. However, the bond is rarely as strong as with natural parents. If the new spouse has children of their own, the bond is likely to be greater.
There is another layer of complexity where there are children from multiple relationships. During the stressful time of bereavement, tensions can run high and aggrieved children or widows finish up with ruinously expensive and life changing legal arguments.
‘All to my spouse’ Wills
The offending instrument is generally “all to my spouse/partner absolutely” Wills, where the estate of the first parent to die passes to the survivor. As it becomes their property it is open to all potential hostile creditors. Once in his or her estate, it will then pass under the rules of his or her will or intestacy.
A simple Trust – Don’t leave it to chance!
It is perfectly possible to establish Wills that allow the survivor to benefit during his or her lifetime. This can be achieved by setting up a simple low maintenance trust for the benefit of the survivor. This could include the deceased’s share of the family home, other properties owned by them or co-owned, as well as savings and investments. He or she will also be a Trustee giving them control. If they enter into new relationships there are safeguards put in place by the Trust.
For example:
If the marriage does not work out, the estate of the deceased parent does not become available to the divorce process/courts/estranged future spouse. The survivor cannot make a new Will for the proceeds of the Trust. The residue of the Trust is automatically predestined to pass to the children after the death of the survivor.
Life Assurance Policies
By placing life assurance policies in trust can also overcome this potential threat. The trustees can lend the proceeds to the surviving parent. The loan is returned to the trust for the benefit of the next generation free of IHT. Similarly, pension bypass trusts can be used for pension death benefits.
