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The complex planning needs of the modern family

The following case study will illustrate how quickly children can be locked out from getting an inheritance due to issues that can arise from blended families.

Protecting wealth in blended families

Whether it is due to divorce or death, there are now numerous families in the UK which are described as blended families. A blended family consists of a couple, the children they have had together, and their children from previous relationships.


A blended family can create complex financial planning issues, which left unresolved can ultimately create a situation where wealth is not passed on to the intended recipient.


The following fictional case study will illustrate how quickly children can be locked out from getting an inheritance due to issues that can arise from blended families.

Case study

Tom and Michelle are happily married with two children, William aged 12 and Hugo aged 11. Michelle receives £200,000 in inheritance from her father which she invests. She intends to use the money to pay for her children to go to university and for deposits for their first homes.


Michelle falls ill and passes away a year later. Michelle made a will, and left all her wealth to Tom. A few years later Tom meets someone else, Alison, and decides to remarry. Alison already has two girls, Amelie aged 6 and Alexa aged 4. Tom and Alison decide to use Michelle’s inheritance to extend their family home instead of paying for the boys to go to university.


A few years later Tom is involved in a road traffic accident and passes away. As joint owner of their family home, Alison inherits the whole property but Tom did not make a will, and the remainder of his wealth, totalling about £200,000, also automatically goes to Alison.


William and Hugo contest this decision and feel some of their Dad’s wealth should have passed to them. Due to the ongoing animosity, Alison decides to ask William and Hugo, who are no longer dependants, to leave the family home, and no wealth is passed to them.

The importance of trust planning

Michelle would not approve of her inheritance being spent by Tom and his new wife Alison on a house extension and would also be devastated if she knew her two boys had been disinherited.


One of the simplest ways Michelle could have avoided this situation is if she had invested the money she had earmarked for William and Hugo’s further education in a trust. This would have shielded it from Tom and his new wife’s actions.


There are two types of trust that could be considered by parents to make sure wealth is passed on to the intended people:

  • A discretionary trust gives a parent more control over when and how assets within the trust are distributed and to whom. The trust is guided by the parent, who writes a letter of wishes to the trustees setting out their wishes. Although the letter of wishes is not binding, it does provide the trustees with an insight into the parent’s preferences, which in Michelle’s case is for the money to be spent on university education.
  • The other option would be to use a bare trust. This would mean that the children, who are beneficiaries, would be entitled to their respective share in the trust at age 18. The benefit of this type of trust for blended families is that the beneficiaries are fixed, so once the trust is declared, it is not possible to add (or remove) beneficiaries. However, the children will have access to that money as soon as they turn 18 and they will be able to use it in any way they choose, so William and Hugo may not choose to use the money to go to university.


There are differences in how inheritance tax is applied to these different trusts. Discretionary trusts will be subject to the IHT chargeable lifetime transfer regime while assets gained from a bare trust are treated as a potentially exempt transfer. With either trust, where the person making the gift lives for seven years after making it, the gift falls outside their estate for IHT purposes. The discretionary trust can attract further IHT charges every ten years and when money is distributed to beneficiaries.

The importance of will planning

The other obvious method of ensuring the right assets are passed down to the right people is through writing a will. Being a widow and then remarrying is not uncommon. However, this places a responsibility on Tom in this case study to ensure his children are financially looked after on his death.


Tom could have written a will to ensure his assets were fairly divided should anything happen to him. On his unexpected death, his assets (and any life assurance) could have been fairly divided so both Alison and his two sons received some money.


Alison’s decision to disinherit her step-children is all too common, and highlights the importance of will planning as you never know what’s round the corner.

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