Wills and Trusts: How Blended Families Can Plan for Succession

In a unique settlement during their divorce, Raj took care of his wife and two children and had no further obligations to them. He wishes to leave his assets to Anita, to the son from his marriage to Anita, and a portion of the wealth to Anita’s son from her previous marriage. What do you think will happen in the event of Raj’s premature death?

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

This is not what Raj wanted. However, under Hindu succession laws, if a person dies intestate (i.e. without making a will), his property will be divided equally between his mother, his wife, and his children. The question arises as to who are considered “children” in a stepfamily. In this case, Raj’s children from his previous marriage and his son from his marriage to Anita will be considered his children. Since he has not formally adopted the child from Anita’s previous marriage, that child would not be considered Raj’s child from a legal perspective.

Can this unrest in the family and the failure to comply with Raj’s wishes be avoided? Yes. By drawing up a will and specifying Raj’s wishes in an unequivocal manner.

In recent years, blended families have been on the rise. These families include a mix of biological and non-biological family members, including children from past and present relationships, stepparents, and stepsiblings.

Such families are a sign of recent times. Along with the many emotional ups and downs, a daunting task for such blended families is to plan a fair distribution of wealth among the different family members. An ideal succession process would be a fair distribution of assets among family members without favoritism or favouritism, such that grudges and strained relations are avoided. However, emotions can play a major role in deciding on the distribution of wealth among family members in these families. Therefore, succession planning becomes even more complex in these families.

Navigating the complexities

Family wills and trusts can be a great help to families in navigating the complications surrounding succession associated with blended families.

Wills

A will is an act performed by the owner of the property to express his or her wishes regarding how his or her property should be distributed in the event of his or her death. In the absence of a will, the property is distributed according to personal laws, as we saw in the example above. It must be recognized that a will comes into effect only after the death of the person. If the will has any kind of ambiguity, people may have to face a legal battle to claim their rightful share of the wealth. To avoid this scenario, families may consider making the will airtight or they can use trusts along with wills.

Trusts

Trusts are widely used for estate planning. A trust typically involves three parties: the settlor, the trustee, and the beneficiaries. The settlor/testator/individual transfers all or part of his or her property to a private family trust for the benefit of the beneficiaries, while the trustee is responsible for managing the trust assets. Such a transfer may occur under a will (testamentary trust) or during the settlor’s lifetime.

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

Family letter

In addition to the modalities mentioned above, a family statute can be a useful tool for planning succession in a blended family, especially if it involves 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 matters such as the roles of various family members in business, divorce, and remarriage, including the role of children from previous marriages.

Family bylaws are especially important in blended families, where multiple family members are involved and instances of hostile behavior may arise. A bylaw can help build trust and foster cohesion among family members and provide future guidance regarding various contentious issues.

In a world where money issues can lead to disputes even among blood relatives, blended families have the difficult task of ensuring 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 needs to be handled with utmost care, keeping in mind the needs, aspirations and wishes of everyone. It is advisable to take the help of experienced financial advisors and estate planners who have experience in resolving conflicts.

Raj’s case is hypothetical.

Shweta Shah, Head of Wealth Structuring and Estate Planning, Nuvama Private.