Complicated family? Here’s how to protect your inheritance

Modern families come in many shapes and sizes. For some, that means raising children from previous relationships alongside children with a new partner – something that can cause complications when it comes to estate planning.

According to the 2021 Census, among couple families with dependent children, 8.5 per cent were step-families and 3.5 per cent were blended families. Taken together, this accounts for around 12 per cent of all such households – a figure that has grown by more than 20 per cent in just five years, according to ABS data.

Estate planning for blended families can be complicated, but it doesn’t have to be overwhelming.Credit: Simon Letch

As a result, estate planning for blended families has become increasingly important as more Australians navigate complex family structures. While every family is different, one thing is clear: this planning requires more care, more communication, and a thoughtful approach to ensure loved ones are protected.

But how can families navigate a topic that can be tricky and sensitive?

Start with open conversations

Estate planning doesn’t begin with the paperwork; it starts with family. Honest discussions about values, fairness, and long-term intentions are essential to prevent future misunderstandings. Focusing on shared intentions and family harmony often makes the conversation easier.

Ultimately, estate planning for blended families is about balance. You may choose to allocate a percentage of your estate to each beneficiary, or assign specific assets to individuals.

Whatever the approach, documenting your reasoning is important – it helps your family understand your decisions and reduces the risk of conflict later.

Keep your plan up to date

Life evolves, and so should your estate plan. Shifts in family structure, finances, health, or living arrangements can all affect your wishes. Reviewing your plan regularly, at least every couple of years or after major life events such as marriage, divorce, or the birth of children, helps ensure it stays relevant and reflects your circumstances.

Just as important are ongoing legal and financial advice – both pillars of a robust estate plan that cannot be overstated. Hand in hand, they help families stay informed about regulatory changes, such as updates to family provision or digital asset rules.

Australia’s legal framework offers several tools to help structure estate plans. Choosing the right mix depends on your circumstances, family dynamics, and long-term wishes.

Wills: A will is the foundation of any estate plan. For blended families, clarity is especially important to reduce the risk of confusion or disputes later.

A professionally drafted will is one prepared with the help of a qualified legal professional, usually a solicitor with estate planning expertise. Compared to DIY kits or handwritten notes, a professionally drafted will is more detailed, tailored to your circumstances, and written in precise legal language.

In some situations, couples choose mutual wills – a pair of wills made together with an agreement not to change them once one partner passes away. These provide reassurance that children from prior relationships will be looked after, but they also limit flexibility for the surviving partner.

Letter of Wishes: Some people also include a Letter of Wishes alongside their will. While not legally binding, this letter provides context for your will decisions and guidance for executors. In blended families, it can help reduce misunderstandings by explaining your intentions.

Testamentary Trusts: A trust created within a will that comes into effect after death. It allows controlled distribution of assets – often to protect children’s inheritances – and in some cases provides tax advantages. Testamentary trusts can be complex to set up and manage, so they usually require legal guidance.

Binding Financial Agreements (BFAs): Commonly known as prenups or postnups, BFAs outline financial expectations before or during marriage. They can reduce the risk of future disputes, though they must be carefully drafted to remain valid. Like other tools, they may become outdated if major life changes occur, such as having children or large financial shifts.

The bottom line

Estate planning for blended families can be complicated, but it doesn’t have to be overwhelming. There is no one-size-fits-all approach. Early discussions – however uncomfortable – can prevent problems later on.

True peace of mind isn’t just about having a plan in place – it’s knowing your family’s financial future is secure, no matter how complex your situation. With thoughtful conversations, professional advice, and the right tools in place, you can protect your loved ones and reduce the risk of disputes further down the track.

Jeffrey Chien is a financial advisor at Viridian Advisory.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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