Blended Families Case Study

Our upcoming SAPEPAA conference, (which you can watch live online on the 6 and 7 October - click the picture above) is a case study intensive of 7 case studies where SAPEPAA advisers work on a set of facts with direction. These are challenging as it is now time to ensure that we hold and meet our competency standards in real life scenarios. Here is the Blended Family Case Study - it is a tough one. What would you do and do you dig for the facts that we have here when you have clients that have been in relationships before.

Background

The Taylor family lives in Bowral NSW and is navigating the complexities of wealth protection and estate planning amidst new family dynamics. John (48) and Lisa (45), both divorcees, recently got married. Each has children from their previous marriages: John has a 16-year-old daughter, Emma, and a 14-year-old son, Luke. Lisa has a 17-year-old daughter, Ava. They now face the challenge of protecting their assets for their bloodline while addressing concerns about new and old partners.

Set of Facts:

1. Family Wealth Structure and Concerns

   • John’s Assets:

     • Family home (owned solely by John) valued at $2 million.

     • A small investment portfolio worth $300,000, accumulated before marrying Lisa.

     • An existing discretionary trust holding $1.2 million in various investments. John is the trustee and sole appointor with his children, Emma and Luke, are the primary beneficiaries.

   • Lisa’s Assets

     • Owns a successful boutique business valued at $1 million.

     • An SMSF valued at $600,000.

     • A small apartment that she rents out, valued at $500,000, intended for her daughter, Ava, when she turns 25.

   • Concerns

     • John is worried that if he passes away, Lisa could gain access to all his assets, potentially diluting what he intends to pass on to Emma and Luke.

     • Lisa is concerned about her previous partner trying to claim a portion of her assets or disrupting her estate plan for Ava.

     • Both John and Lisa want to ensure that their assets are protected for their respective children, minimising any possible claims from their former partners.

2. Previous Divorce Settlements and Obligations

   • John has an ongoing child support arrangement with his ex-wife for Emma and Luke, which is currently covered by monthly payments of $2,000 per child plus private school fees of $28,000 per child.

   • Lisa receives a small amount of child support from her ex-husband for Ava but is concerned about the potential for him to challenge her estate if she passes away, claiming a need to support their daughter.

3. New Relationship Dynamics

   • John and Lisa both want to provide for each other in case of death but also wish to maintain clear boundaries to ensure their respective children's inheritance is protected.

   • They worry that if one of them remarries after the other’s death, the new spouse could gain access to their assets or influence the distribution away from the bloodline.

4. Estate Planning and Current Wills

   • John’s Will currently leaves everything to Lisa with the understanding that she will take care of Emma and Luke. However, there are no formal safeguards in place to ensure this happens, particularly if Lisa remarries or changes her mind.

   • Lisa’s Will is similarly vague and leaves her estate to John, then to Ava. There is no mention of a testamentary trust or specific protections for her business and apartment.

5. Child Maintenance Trust Considerations

   • John is interested in setting up a Child Maintenance Trust to meet his child support obligations for Emma and Luke in a tax-efficient manner and to provide for their education and general welfare until they turn 18.

   • Lisa is exploring the possibility of a trust to support Ava’s future needs, including her university expenses, while protecting these assets from claims by her ex-husband.

Additional Challenges

• Both John and Lisa want to establish a living arrangement that reflects their commitment while protecting their individual assets, but they’re unsure of the best structure.

• John and Lisa have not yet had discussions with their respective children about these changes, fearing potential conflicts or misunderstandings.

• They are concerned about potential family provision claims from either ex-partner or from the children if they feel inadequately provided for.

As a SAPEPAA Adviser what would be your advice. Feel free to send your solutions to cris@sapepaa.org.au