Second Marriages: Protecting your Children & their Inheritance
Nowadays, second marriages are quite common. We look at a case study of Bob and how second marriages cause issues not only during our lifetime but also upon our death, including Inheritance provisions, large estates attracting taxes and whilst all this is going on…trying to keep everyone happy and doing what seems fair!
So, let’s look at a case study of Bob to put things into perspective…
- Married in his early 20’s;
- Bob has 3 children who are now all grown up and have their own children;
- Unfortunately, Bob’s wife passed away some years ago and after spending some time alone, Bob met a new partner Sally.
Sally is also a widower and has two children of her own, a son and a daughter. Sally’s daughter has two children also but her son never married and lives the life of a ‘Rock and Roll Star’.
Both Bob and Sally own their own homes but want to sell up and move to the coast together to enjoy their retirements.
Their current assets look like this:
House |
Mortgage |
Buy to Let |
Mortgage |
Savings |
Shares & investments |
Total (less mortgages) |
Bob
£500,000 |
£100,000 |
£0 |
N/A |
£75,000 |
£25,000 |
£500,000 |
Sally
£600,000 |
£0 |
£250,000 |
£40,000 |
£20,000 |
£60,000 |
£890,000 |
Now, Bob and Sally have agreed that the life and wealth they each built before they met will be passed on to their own children.
They have put an offer on a luxury bungalow on the south coast which has been accepted at £800,000.
There may be a few complications that they need to resolve and plan for carefully, so they can purchase their dream home and make sure that each of their children’s inheritance is protected.
How will they own the home?
- Joint Tenants: This means you both own the home jointly, when one of you dies the survivor automatically owns the house outright.
This is not a good option for Bob & Sally as they want to pass their own share on to their children.
- Tenants in Common: This allows the owners to hold the property in shares (equally or in different shares), for example 50% each or, you could own it in any percentages you wish 60/40, 70/30 etc.
For Bob and Sally, owning the home as Tenants in Common would be the best option. If they both put in equal amounts of £400,000 to pay for the property, their share is protected and they can gift their share of the house in their Will to their children, or to anyone else that they wish.
What happens if Bob dies first?
If Bob passes first, Bob’s children would receive his share in his Will. They could force Sally to sell up to get their money or she would have to find £400,000 (or half the current market value if the property went up in price since purchasing) to buy Bob’s children out. This is not a situation that either Bob or Sally would like to find themselves in. So what’s the solution…
A simple Trust in their Will
Bob has a Will drafted stating that all of his assets are to pass to his children BUT puts a Trust in his Will stating that he would like Sally to live in the house until she sells up or passes away. If she sells the house Bob’s children will receive their share, or upon her death, the house can be sold and Bob’s share will pass to his children.
Creating a Will with a Trust in this way, allows Sally to live in the property for as long as she wants without the worry of finding money or being pressured by Bob’s children. You can also put in other stipulations of the Trust too, for example stating that the Trust would end should Sally (in this case) remarry.
It would of course make sense for Sally to write a Will and Trust similar to Bob’s so he is protected should she pass away first.
Other considerations…
In addition to sorting out their Wills and Trusts, there are a couple of other things we would recommend considering before Bob and Sally venture off on a new life down by the sea to protect themselves and each other.
Lasting Powers of Attorney (LPA)
If Sally was to lose capacity and need to go into a Care Home, she may want to be closer to her family, children and grandchildren, Bob would not be able to sell the house to release funds to pay for her care – without going through the courts which is a lengthy and costly process.
Both Sally & Bob would need to sign the legal documents for the sale to go through if the house was held as Tenants in Common BUT with an LPA in place, Sally’s Attorney would be able to sign on her behalf.
LPAs also have a number of other benefits around financial and health affairs that may arise for Sally. Take a look at our article explaining our Top 5 reasons for getting an LPA in place for more information
Funeral Plans
It would also be advisable for both Bob and Sally to consider putting a funeral plan in place. A funeral plan is prepaid and secures the cost of the funeral director services at the time the plan is taken out. This means that, rather than either the surviving spouse, or Bob & Sally’s children having to face the financial and emotional burden of paying for and arranging the funeral…this will all be done for them with one simple phone call.
Inheritance Tax
Another consideration is Inheritance Tax. It is always best to speak to an expert to make sure you have taken any possible measures to reduce your inheritance tax liability to protect yourself and your family where possible.
MOST IMPORTANTLY…Don’t panic, there are always options around this and if this concerns you, get in touch we are always happy to give free advice, answer any questions and help to resolve your concerns.
If you would like a FREE chat to discuss your options, get in touch on info@TotalLegacyCare.co.uk or 01727 865 121
Leah Waller
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