Wills and trusts: How blended families can navigate succession planning

In a one-time settlement during his divorce, he fully provided for his wife and the two children and had no further obligations towards them. He wishes to leave his assets for Anita, his child from his marriage with Anita, and some portion of the wealth for Anita’s child from her previous marriage. What do you think will happen in case of Raj’s untimely death? 

If Raj has not made a will, his assets will be divided between Anita and his three children (the two from the previous marriage and the one from his marriage with Anita).

This is not what Raj wished for. However, as per the Hindu laws of succession, if a person dies intestate (i.e. without making a will), his assets will be divided between his mother, wife and children equally. A question arises as to who are considered as “ children” in a blended family. In this case, Raj’s children from the previous marriage and his child from marriage with Anita shall be considered as his children. Since he has not formally adopted the child of Anita’s previous marriage, that child wouldn’t be considered as Raj’s child from a legal perspective.

Can this heartburn in the family and non-fulfilment of Raj’s wishes be avoided? Yes. By making a WILL and specifying in it, unambiguously, Raj’s desires.

Blended families have been on the rise in recent years. These families include a mix of biological and non-biological family members, including children from past and present relationships, step-parents and step-siblings.

Such families are a sign of the recent times. Along with the many emotional ups and downs, a daunting task for such blended families is planning for a fair distribution of wealth amongst different family members. An ideal process of succession would be a fair distribution of assets among family members without favour or favouritism in such a manner that it avoids grudges and strained relationships. However, emotions may play a major role in deciding about the distribution of wealth amongst family members in such families. So, succession planning becomes even more complex in such families.

Navigate the complexities

Wills and family trusts can be immensely helpful to families in navigating the complications surrounding succession associated with blended families.

Wills

A will is made by the asset owner to express their desires with respect to how their assets should be distributed in case of their death. In the absence of a will, assets are distributed in accordance with personal laws as we saw in the above example. It must be recognized that a will becomes operational only after the individual’s demise. If the will has any kind of ambiguity, individuals may have to face a legal battle to claim their rightful share of wealth. To circumvent this scenario, families may consider making the will watertight or may use trusts along with wills. 

Trusts

Trusts are widely used to plan for succession. A trust typically involves three parties—settlor, trustee and beneficiaries. The settlor/testator/individual transfers all or some of his/her property to a private family trust for the benefit of the beneficiaries, whereas the trustee is entrusted with managing the trust’s assets. Such a transfer may happen under a Will (Testamentary Trust) or during the settlor’s lifetime.

If created during the asset owner’s lifetime, a family trust may bring more certainty regarding the distribution of assets than a will. This is because challenging a trust created in the settlor’s lifetime is more difficult than contesting a will.

Family charter

Apart from the above modes, a family charter can be a useful tool for succession planning in a blended family, especially, if it’s a business succession.

A family charter is a formal written document that serves as a comprehensive record of a family’s heritage, conflict resolution strategies, and other pertinent aspects, such as the roles of various family members in the business, divorce and remarriage, including the role of children from previous marriages.

Family charters hold particular significance in blended families, where multiple family members are involved, and instances of hostile behaviour may arise. A charter can help build trust and foster cohesion among family members and provide guidance in the future with respect to various controversial issues.

In a world where money matters can result in disputes even between blood relatives, blended families have the tough task of ensuring a fair distribution of wealth to avoid disputes and foster love and peace in the family. Succession planning in blended families is a very delicate and sensitive task and should be handled with the utmost care, taking into account everyone’s needs, aspirations and wishes. It is advisable to take the help of seasoned financial advisors and estate planners who have experience with conflict resolution.

Raj’s is a hypothetical case.

Shweta Shah, head-wealth structuring and estate planning, Nuvama Private.