Inheritance planning and blended families: a tricky mix

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Throughout history, people have struggled for family wealth, although conflict is rarely as dramatic as Hollywood would have us believe. The plot of the hit film 2019 Knife out, for example, follows a dysfunctional family whose members are all involved in the death of their patriarch.

Few people kill for an inheritance, but it only takes one disgruntled family member to mess up estate planning. And as the pandemic increases financial pressure on families, many bereaved will dispute wills. The rise of blended families – those made up of different families brought together through new relationships over time – means personal finances are much more complicated than they used to be.

“Deciding who will inherit your assets and how much money to get them can be tough enough for even the simplest of families,” said Natasha Stourton, partner on the trusts, estates and inheritance disputes team at Withers Worldwide law firm. “But when it comes to stepchildren and adoption and surrogacy problems, there are a lot more opportunities for conflict.”

The process of decision-making is more difficult for families with blended families, as the beneficiaries sometimes do not get along well. “Relationships change over time, so you cannot guarantee that the position between beneficiaries after your death will be the same as when you made your will,” said Alison Parry, partner at JMW Solicitors. It is to be hoped that family members will continue to have good relationships, of course, but it is important to protect everyone who is entitled during this difficult time, she adds.

Members of Johnny Hallyday’s family at his funeral in Paris © Getty Images

Lawyers say people are often torn as to whether to leave money to their spouse and children from a previous relationship. When a parent dies, this tension often leads to violent arguments between family members if they believe the will is not fair.

A will should clearly state the will of the testator (the person leaving a legacy), but it can still be challenged. In July it was reported that actress Elizabeth Hurley’s 19-year-old son Damian had been denied a £ 180 million share in a Bing family trust. He had been conceived out of wedlock by Steve Bing, who died last year. Bing’s father won a lawsuit in the United States aimed at excluding Bing’s illegitimate children from the trust.

A will can also be challenged, depending on where the beneficiary is considered to be domiciled. In England and Wales, a person can leave assets to whomever they want in a will, but this rule does not apply worldwide and varies by jurisdiction. Many countries – for example Scotland, most countries in Europe (including France, Spain and Germany), and Saudi Arabia, Brazil and Argentina – do not allow complete freedom in choosing beneficiaries. Instead, they work on the principle of forced inheritance, which means that a certain part of the estate must be bequeathed to the next of kin – spouse, children, parents, etc. – in order to guarantee them a guaranteed minimum protection of their inheritance.

Lilly Whale, a private client attorney at Goodman Derrick law firm, says English law can give blended families more flexibility. “Given the principle of testamentary freedom in England and Wales, a testator is free by law to leave his estate to his stepchildren if he so wishes, without having to care for their blood children,” she says.

However, the rules in England and Wales are not foolproof, she adds, as the Inheritance (Provision for Family and Dependants) Act 1975 provides a mechanism for spouses, children, or those treated as children or dependents to make claims against the deceased’s estate to assert where they are left without adequate financial provision. “The applicant must prove that he was supported either financially or in some other way by the deceased before his death, for example through frequent gifts from the deceased or rent-free living in the apartment,” says Whale.

An example of a claim under the law was on the £ 98 million estate of singer George Michael, who died in 2016. Michael’s former partner Kenny Goss sued his estate on the grounds that he had been excluded from the will. The plaintiff and Michael had not been in a relationship at the time of Michael’s death, but Goss brought the lawsuit because Michael had continued to support him financially. The case was settled out of court so the settlement agreement was confidential. But it is a reminder, says Whale, “that testators must seek appropriate advice from professional counselors at the time they make their wills to avoid their loved ones engaging in potentially costly and onerous legal disputes after their deaths.”

Natasha Stourton

Natasha Stourton

In France, the rules of compulsory inheritance make it clear that all children are entitled to part of their parents’ estate and cannot be disinherited. “If a family has international assets, we strongly recommend seeking advice in each jurisdiction as the rules vary enormously,” said Abigail Bird, partner and legacy team leader at Laurus law firm. “For example, if a family has interests in France, two wills should be made, one in France and one in England and Wales.”

Further uncertainty can arise when a will conforms to the laws of England and Wales but conflicts with the laws of another jurisdiction. “The courts are generally guided by the inheritance law of the country in which the immovable property is located, which gives the blended family an additional dimension in which the inheritance law may not be clearly delimited,” says Yvette Jacobs-Lee, a tax partner at the accounting firm Moore Kingston Smith.

Yvette Jacobs-Lee

Yvette Jacobs-Lee

The case of the turkey tycoon Bernard Matthews shows the interplay of different provisions in different legal systems. Matthews died in 2010 at the age of 80, estranged from his wife. His English will left most of his £ 50million estate to his only biological child, but he also deposited a French will on a long-term loan to a £ 12million mansion (which was part of that estate) in Saint-Tropez, France leave partners.

Matthews is believed to have hoped that the three adopted children from his marriage, all of whom had considerable fortunes, would accept his French will, and he left a wish-letter to that effect. “Instead, his adopted children asserted their right under French inheritance law to claim their share of the villa to the detriment of Matthews’ partner and against his express request,” says Jacobs-Lee.

Bernard Matthews, whose wish letter has been challenged

Bernard Matthews, whose wish letter has been contested © Alban Donohoe / Shutterstock

The problem of family members in multiple jurisdictions is further illustrated by another case in France involving a high profile musician living in the United States: French rocker Johnny Hallyday. When he died in 2017, his estate – worth around 34 million euros – was bequeathed to his fourth wife and children according to a California will, excluding his children from a previous marriage. These children challenged the will on the grounds that he was actually a resident of France and not California, as he had claimed, and therefore French rules should have applied.

Andrew Godfrey, a partner in the Russell-Cooke law firm, also chairs the Society of Trust and Estate Practitioners’ cross-border estate group. “French (and European) cross-border succession plans assumed that French rules apply – and gave all of his children a stake,” he says. “This case caused a public outcry in France. Social media records were even viewed to try to determine the location where he spent time. In the end, the family members settled their differences at the suggestion of the court. “

Aside from formal agreements, the key to avoiding high profile feuds is for families to openly discuss what to do with their assets in the event of a marriage breakdown, legal advisors say. “It is extremely important for couples in blended families to discuss the proposed terms not only with their new partner but also with their children and stepchildren so everyone knows what is being trapped and why,” said Charlotte Coyle, Goodman family attorney Derrick.

Others agree, saying that estate planning will not be complete until communicated to heirs. “It’s ideal to have proactive, ongoing, and inclusive conversations about your wealth transfer intentions – to get input from your family, explain your mindset, invite questions, and be open to change,” said Jill Shipley, family director Governance and education at Tiedemann Advisors in the USA. “Planning and discussing your asset transfer intentions is becoming increasingly difficult and complex based on your pedigree, the type of asset – liquidity, shares in a privately owned company, generational trusts, property, etc. – as well as citizenship and tax. Effects of those involved. “

In Shipley’s experience, families in Europe, the UK and Israel, for example, are less fond of talking about money than in the US – and even there it is still rare and difficult. However, it is important to talk about asset transfers before it is too late. “I’ve had customers who said, ‘I don’t want to deal with them being mad at me. Once I’m dead, I won’t have to worry about it anymore. ‘”

However, a lack of communication often leads to sibling rivalries and other family disputes, and even legal proceedings, which add enormous financial and emotional costs to a family. “Often you have to tell horror stories about the train wreck that arise when people don’t talk about plans before they understand the power of communication,” says Shipley. “Most take care of their family’s relationships after they’re gone, and if that’s not enough motivation, the idea of ​​wasting their wealth in court cases can [encourage] Transparency.”

This article is part of FT assets, a section with in-depth coverage of philanthropy, entrepreneurs, family offices, and alternative and impact investments

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