Wills and new relationships
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How to avoid disinheriting your children without leaving your new partner high and dry.
If you have children from a prior relationship and a new partner it is important your Will balances the needs of your partner and children and each of their potential claims against your estate.
Family Protection Act 1955 obligations
Under the Family Protection Act, a person has a moral obligation to adequately provide for certain people in their Will. These people include partners, children and grandchildren. What is adequate depends on the circumstances, such as the size of the estate, the individuals needs and the needs of the other beneficiaries.
While you have a moral obligation to provide for your children in your Will, your partner usually does not have a moral obligation to provide for your children in their Will, unless they are minor or dependents when you pass.
If your Will leaves everything to your partner then:
- If your children make a claim against your estate – they have a good chance of success as they have been left out of your Will. A claim is stressful for all involved, diminishes the value of your estate and can be detrimental to relationships; and
- If your children do not make a claim against the estate – they might be left something in your partner’s Will, but your partner could later change their Will to exclude your children and your children would not be entitled to make a claim against their estate.
Property (Relationships) Act 1976
Unless a valid Contracting Out Agreement or Relationship Agreement is in place, a surviving partner has the right to choose whether to (A) make an application to the Court to divide the estate in accordance with their relationship property entitlement or (B) accept their gift under the Will.
It is important to understand that your assets are not just at risk in the event of separation, but also on death. For this reason, it is important to have relationship property advice to ensure your wishes are honoured on separation or death.
Possible Will structures
Here are three common Will structures for second or subsequent relationships.
1. Mirror Wills
You and your new partner create Wills leaving all assets to each other in exchange for a mutual promise that when you both pass your assets will be distributed in a certain way (for example, 50% to your children and 50% to your partners children). This creates a binding obligation on the survivor not to change the ultimate beneficiaries of their Will. The Wills can be updated provided you both agree during your lifetimes.
At its best, this structure gives the survivor a comfortable lifestyle while providing your children with reassurance that they will be provided for in the end.
There are some difficulties with this including:
- Disgruntled children may still make a claim under the Family Protection Act. Speaking with your children about your Will can be helpful as it manages their expectations and prevents the feeling of a nasty surprise when you pass. Alternatively, you can make all of your assets joint in an effort to prevent a claim – as joint assets pass automatically to the survivor, making it much harder to make a claim.
- While the survivor might not change their Will, the assets may be depleted during their lifetime so that your children receive a much lesser amount than you intended.
2. Early gift to children and residue to spouse
Your Will can leave a gift to your children (such as your Kiwisaver, a cash gift, a percentage of your estate or a life insurance policy) and the residue to your partner. This ensures your children receive something now while your partner still receives enough to comfortably live on.
If desired, you can use a combination of an early gift and mutual Wills so that your children receive something now and when you both pass.
3. Life interest Wills
This is perhaps the most certain way to provide for your partner during their lifetime and your children when both you and your partner pass.
Usually a life interest Will allows the survivor to live in a property (or substitute residence) for the rest of their lives on the basis they pay for outgoings. A life interest can also be over the whole estate, so that the survivor can live off any income generated from other assets (such as the proceeds of any bank accounts and investments).
This can also be beneficial for the survivor if they go into residential or hospital level care, as it will reduce the assets they own in their own name.
A life interest Will can be beneficial, but can also add cost and complication. A life interest creates a Trust and, for the rest of the survivor’s life there would be trustees involved in key decision making (such as selling and buying a new residence) and possibly ongoing tax returns for the estate.
Speak to a professional
If you have children from a prior relationship and a new partner, we can help you plan for the future in a way that protects all the people you love.