How to Divide Assets in a Blended Family

Jan Atkinson
older man on a bench

Table of Contents

In this article we look a scenario for someone who is making a will where they are married with children from a previous relationship. We review the options of how to divide assets fairly in a blended family.

Wills & Estate Planning for Blended Families

Individuals in blended family situations often face more complex estate planning decisions.

You may want to make sure that your current partner is taken care of while ensuring your own children will inherit your estate. You may have accumulated wealth from before the relationship which you wish to ring fence for your children. Or you may have wealth tied up in the family home, which raises questions of whether the surviving spouse can stay in the house but the property passes to your children.

While it’s generally possible to divide assets however you think fit, you will need to create a will, and possibly some other legal structures, to make this happen.

Failing to leave a properly drafted will can create significant problems for your loved ones, especially in blended families where the rules of intestacy may result in children from either side being unintentionally left out of the will.

Is their a typical will for blended families?

There is no typical will for blended families, there are several ways of splitting your assets on death so everyone gets a fair share.

Simple cash division

If sufficient assets are available apart from the family home, you can choose to divide those between the surviving spouse and children from a previous marriage. Or, you could leave the family home to the surviving spouse and divide the remainder of the estate among the children from a previous marriage. This method allows the surviving spouse to continue to have a roof over their head while the children get a fair share of the estate.

But if, as is often the case, most of the assets are tied up in the family home and/or the spouse needs most of the other assets to live on, then one of the following trust structures may be a better option.

Life interest trust

Setting up a life interest trust would give the surviving spouse a right to occupy the family home following your death. They would also have a right to receive income from the trust, such as interest on investments or rental income from a property, and would thus be able to maintain their lifestyle.

This is not an outright gift to the surviving spouse, however. While the spouse can live in the property, they cannot sell it and walk away with the proceeds or leave it to someone else outside the family when they die. Rather, the trust is set up so the children ultimately receive the capital on the death of the spouse.

The downside of this type of trust is that it lasts as long as the surviving spouse is alive. That means the children would have to wait until the death of the surviving spouse for their inheritance which, depending on the age of the spouse, could be decades in the future.

Discretionary trust

A discretionary trust allows the trustees to decide how and when income or capital is paid out to beneficiaries. This type of trust provides flexibility in how and when assets are distributed, which can be useful for blended families where circumstances may change over time.

For example, if the surviving spouse remarries, the trustees can choose to not distribute any assets to them. If a child needs money for education or a house deposit, the trustees can make a distribution to them exactly when they need it. If another child is doing well for themselves and doesn’t need the money, the trustees can choose to give more to the other beneficiaries. The beneficiaries may not receive an equal split of the inheritance but, if the trustees do their job correctly, everyone will receive a fair and appropriate share.

Since the trustees have a lot of power, you’ll need to choose them very carefully. Writing a letter of wishes is a good idea to let the trustees know what your intentions are. They are not bound to follow the instructions, but it would be a useful guide for them.

Own the home as tenants in common

If you share ownership of your family home with your spouse, being tenants in common might make more sense than being joint tenants.

As joint tenants, the property goes to your spouse when you pass away, which means your children won’t inherit the family home. This is called a ‘sideways inheritance’. With tenants in common, you each own a part of the home. You can decide who gets your share when you die. This way, you can leave your portion to your children from a previous relationship.

If you currently own the property as joint tenants, a solicitor can sever the joint tenancy and change it to tenants in common.

Division of assets – the impact on your tax

When deciding how to divide assets in a will, bear in mind that each option has tax consequences.

An English-domiciled surviving spouse is a fully exempt beneficiary, so no Inheritance Tax (IHT) is payable on assets passing to a spouse. The children, however, are classified as non-exempt beneficiaries. If they receive more than the tax-free allowances of £325K plus the £175K residence nil rate band, IHT at 40% would be payable on the excess.

The ‘tax tail should not necessarily wag the dog’, but the tax effects will be important in deciding how you split an estate in a blended family made up of exempt and non-exempt beneficiaries. This is an area of potential conflict, so appointing neutral executors and trustees to administer the estate and ongoing trust would make sense.

Neutral lay executors may not be easy to find, so a professional executor as a solicitor may be a useful option.

Which option is right for me?

Planning for a blended family’s future isn’t simple as there are many things to consider, such as:

  • The overall wealth of your family and what kind of assets you own
  • How old your children are
  • The age and health of your current spouse
  • Other possible inheritances for your children

Talking to one of our expert Wills and Trusts solicitors can really help clarify your estate plans. They can walk you through all the different options and help you choose the best one for your unique situation.

To speak with one of our solicitors, contact us by:

  • Filling in our online enquiry form; or
  • Calling us on 020 7485 8811

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