Intergenerational financial planning for blended families
There are 8.2 million families with children in the UK. 63% of that number represents the “traditional” nuclear family units – a wife, husband and children in a family home. Around a quarter are led by a single parent. 10% are blended families.
Much of the financial advice you see on the internet assumes the nuclear model. However, what about those formed through remarriage or cohabitation, perhaps where children from previous relationships are involved?
In this article, our financial planners in London, Grantham and Leicester aim to bring more balance to the discussion, ensuring that biological children, stepchildren and new partners are all protected in the long term – empowering them to plan harmoniously and effectively across generations.
The unique challenges for blended families
A blended family (i.e. a stepfamily) forms when two individuals create a new life together as a couple, bringing children from past relationships, marriages or civil partnerships into the new household.
These children may include biological children, stepchildren, adopted children or a combination of all three – possibly spanning multiple generations. This creates a lot of diversity amongst the 10% of families that are called “blended”, but they typically share two common characteristics: complex emotional ties and legal considerations.
This can make intergenerational financial planning especially difficult but no less important. For instance, a biological parent may wish to ensure their children from a previous relationship are adequately provided for, but they might also want to support their current spouse and any new children. The result? It is often an unequal distribution of assets, leading to resentment and/or perceptions of favouritism.
Setting firm foundations
None of this is to say that discussions about estate planning are doomed from the start. Yet, it is important for blended families to plan far in advance. For adult family members, it helps to have open money conversations so everyone can see each other’s goals and perspectives.
Transparent communication can help manage expectations, delineate roles and assign each person’s responsibilities: who pays for what, child support obligations, etc. Often, emotions are tempered once family members can see different financial positions, outstanding debts (such as alimony or child support), income sources and spending habits.
Having a financial adviser present during these discussions can help steer the conversations in productive directions, establishing a stable platform from which to address more complicated financial topics, such as estate planning and legacy distribution.
Estate planning considerations
Nuclear families are often at risk of not having their members’ estate planning wishes respected. In particular, the absence of a will can leave the deceased person’s estate vulnerable to the UK’s intestacy rules, which may not distribute assets in the most desirable or efficient manner.
For blended families, these concerns can be even more acute. Without careful structuring, there is a real risk that the financial wishes of one partner may not be fulfilled. Some family members may be unintentionally left out.
The UK’s standard rules around inheritance make assumptions – e.g. all children are mutual, and a surviving spouse will naturally pass on the estate to them. For blended families, these do not hold, leading to unintended consequences such as accidental disinheritance.
There are at least two tools that can help blended families avoid these outcomes: trusts and life insurance. For instance, discretionary trusts (or life interest trusts) can allow a surviving spouse to benefit from living in a family home, draw income from investments and enjoy other benefits from assets during their lifetime. Upon death, these can then pass to the children of the original owner (the first deceased).
Life insurance can be useful for achieving inheritance equalisation. For example, one scenario might have an individual leaving their full estate to their surviving spouse, but they also take out a policy which solely pays out to their children from a previous relationship.
Whatever tools you decide upon for your intergenerational financial planning, make sure you appoint trustworthy executors for your will (and trustees if using trusts). In blended families, a neutral third party – such as a solicitor or a financial planner – may be the best option to avoid bias and maintain objectivity.
Long-term care and retirement
As people age in blended families, difficult questions become more pressing: How are ageing parents going to be supported? What about former spouses and multiple sets of children?
Competing demands often emerge in such discussions, and these need to be balanced with foresight and compassion. In particular, the matter of retirement income planning must be handled with sensitivity and prudence. For instance, will a retired couple in a blended family pool their resources or keep them separate?
Equally crucial is the matter of long-term care planning. What if one partner becomes seriously ill? Will the other partner be expected to care for them? How might step-children feature in such a scenario? These questions are difficult to answer, but they’re important to address early on, to minimise/avoid stress and confusion later during the event.
Final thoughts
These are just some of the considerations involved with successful planning in a blended family, ensuring fairness and transparency. Equality may not always be possible or even desirable, but efforts can be made to make everyone feel considered and respected.
With robust intergenerational financial planning, a blended family not only preserves wealth, but also strengthens bonds and builds a lasting legacy across generations. If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
Please note:
The information provided in this article is for general guidance only and does not constitute personal financial advice. Readers should seek independent financial advice before making any financial decisions. Investments can go down as well as up, and you may not get back the amount you invested. Tax treatment depends on individual circumstances and is subject to change. The Financial Conduct Authority does not regulate will writing, trusts, or estate planning services.
