Anthropologist Bronislaw Malinowski first coined the term “nuclear family” in the 1920s. The phrase describes a typical household consisting of a married couple and their children, and for many years, was considered the ideal family setup.

Since then, attitudes have changed significantly and our ideas about the family unit are far more varied.

Indeed, according to Today’s Family Lawyer, blended families – consisting of couples with their own children as well as children from a previous relationship – now make up a third of all households in the UK.

If your clients are part of a blended family, they could face specific financial hurdles, especially when it comes to their estate plan. Fortunately, we can support them.

Read on to learn about the unique financial planning challenges that blended families can face, and how we could help your clients overcome them.

Clients in blended families may require a more complex estate plan

Clients in blended families often find that their estate plan is quite complex because they may have children from past relationships to consider as well as those with their current partner.

As a result, they may have to divide their estate between several beneficiaries. Some of these could be their biological children while others might be step-children.

Additionally, there could be a significant age gap between the beneficiaries, particularly if the client remarried later in life and had more children.

Your clients may decide that adult children would benefit from lifetime gifts as they could use the wealth to achieve certain goals such as buying a house or getting married. Conversely, they might want to wait until they’re gone before they pass wealth to their younger children.

All these factors could make it challenging for your clients to determine how they will divide their estate.

We can support them by helping them take stock of their assets and considering how they might want to pass them on. Additionally, we can discuss options such as lifetime gifting if they want to begin passing wealth to loved ones now.

It’s also crucial that clients in blended families have a detailed will that clearly outlines their wishes. As such, we will leverage our professional connections and recommend clients to the necessary solicitor to support them with this.

There is a risk of “sideways disinheritance” in blended families

If clients in blended families fail to consider their estate plan, they could face the issue of “sideways disinheritance”. This describes a situation where children from a previous relationship are missed out of a will, often by accident.

There are several ways that this could happen. For instance, if a client divorces and remarries, their existing will becomes invalid. If they were then to pass away without creating a new will, their estate would be divided according to the rules of intestacy.

Typically, under these rules, their new spouse or civil partner would inherit most of their estate. This could mean that children from a previous marriage are disinherited, even if the client named them in their original will before they remarried.

Alternatively, they might create a simple will leaving everything to a new partner. While your client may hope that their new partner ensures all children receive a fair share when they pass away, the new partner doesn’t necessarily have to. They could leave everything to their own children and overlook children from your client’s previous marriage.

Fortunately, we can discuss options to help your clients avoid sideways disinheritance, including writing a clear will and updating it regularly.

They may also benefit from using trusts. These allow your client to ringfence wealth for a specified beneficiary. By placing assets in a trust, your clients could set out clear instructions and ensure their wishes are fulfilled after they’re gone.

For example, they might use a “lifetime interest trust” that allows their spouse or civil partner to continue living in the family home until they pass away. Your client’s share of the house could then pass to their children.

We can explore different ways for clients to use trusts in estate planning and refer them to professionals who can help them make the arrangements.

Pensions could be passed on to an ex-partner unless your clients update their “expression of wish” form

Pensions can be a useful estate planning tool as they can usually be passed on without Inheritance Tax (IHT).

Typically, in the 2024/25 tax year, your clients can pass on up to £325,000 without paying IHT. This is known as their “nil-rate band”. They may also benefit from an additional £175,000 “residence nil-rate band” when passing their main home to a direct descendant such as a child or grandchild.

Also, they can pass their entire estate to a spouse or civil partner without IHT and that person inherits their unused nil-rate bands. This could mean that, as a couple, they can pass on up to £1 million to their beneficiaries.

However, it’s still important that clients take steps to mitigate a potential tax liability, and pensions can be a useful tool here as they can normally be passed on without IHT.

That said, the beneficiaries may pay some Income Tax when drawing from an inherited pension if your client passes away after the age of 75.

Crucially, a client’s will does not cover their pensions and they need to separately nominate a beneficiary by filling out an “expression of wish” form.

Ultimately, the decision about who to pay death benefits to rests with the pension provider but they will consider the client’s wishes. This could create issues if a client divorces and remarries but forgets to update their expression of wish form.

For example, if their ex-partner is still named as a beneficiary, they may inherit the pension. Alternatively, it could name children from a previous marriage but not those from a current relationship.

We can advise clients on the most suitable ways to mitigate IHT and ensure that their expression of wish form is updated so their pensions are passed to the people they intended. We can also support their beneficiaries in understanding what tax they might pay on an inherited pension.

Get in touch

If you have clients in blended families, we can support them with these unique financial planning challenges.

They can contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.