Tips for writing a will in a second marriage or as a cohabiting couple

Catriona Attride: Yeah, I'm good. Thank you. So today, we're going to have a chat about wills, and more specifically how wills should be structured where we have unmarried couples, and also couples who have children from different relationships who might be married.

Fiona Debney: Yep. No problem at all. So second marriages, second relationships, and where there's no marriage in place.

Catriona Attride: Exactly. So if we start with unmarried couples first, in previous podcasts, we've talked about what happens if you don't have a will at all, and that can leave a non-married partner in a real mess, but actually, we then need to think about, well, if we do have a married couple, we need to try and structure the will in as flexible and a tax-efficient way as possible, because when the first partner dies, if their assets exceed the nil rate band allowances that are available at their death, then we're looking at an immediate charge to inheritance tax. And what we don't want to end up happening, is that when the second person dies, we end up paying inheritance tax again on that same assets. So, do you want to talk a little bit about the different ways that we might look at structuring a will for an unmarried couple?

Fiona Debney: Yes.

Catriona Attride: On the basis and the assumption that we're not just leaving everything absolutely to the survivor because we want to make sure that our share of the assets passed to our ultimate beneficiaries, whether it be children or other family members.

Fiona Debney: Yeah. So this is quite common where you have a couple that are in a relationship with children, or where you have a couple that are in a relationship, but with children from previous relationships on one, or both sides. And what we start to talk about when we're talking about wills with people, is the concept to a trust. And trust is a much-used word out there which causes people to be quite frightened of it, but it is just a structure, that we put within a will, that aids us in making sure that money goes or possessions, or whatever it is, goes to the right beneficiary at the right time and allows those beneficiaries to have an element of protection, by virtue of the fact that the money doesn't pass automatically straight to them on the death of the person that we're talking to.

Catriona Attride: Absolutely. And the two main trusts that we're going to be referring to today, and the first is a discretionary trust. And the second is an interest in possession, which is also referred to as an immediate post-death interest. But for the purposes of the unmarried couple, the suggestion would always be to use a discretionary trust. Did you just want to give an overview of what the discretionary trust does and who it's for the benefit of?

Fiona Debney: Yes. So a discretionary trust is where we set up effectively a pot, and we put some bubble wrap around it. And what we say is that into that pot, we are going to put the estate of the bill, when he dies, and we then name specific individuals that we would like to be considered as being able to benefit from that pot. But what we don't do is say that they can automatically have X percent of it. So the discretion comes, when we look at it and say, "Well, who's going to get what, how much, and when, and just because Bill's son may be given 50,000 pounds from that pot, from that discretionary trust, doesn't mean that his other son and his other daughter, will also get 50,000 pounds at the same time. And that's where the discretionary element comes in. And what it allows families to do, is to look at the situation on the deaths of their loved one, look at what monies there are, and then truly look at the needs of the people that have been listed as those that may be able to benefit from what has been left behind.

Catriona Attride: Yeah, that's a good summary. And I think in the context of the unmarried couple, the way this works in a practical way is say, we've got Bill, and Bill perhaps owns the house that him and Jane live in, and Bill dies and his house as well as any other money that he's got, passes into the discretionary trust. And the trustees, the trustees are the people who manage the trust, you make the decisions, have to decide what they're going to do. Now, this is Jane's home. And Jane needs to be able to continue living in this property for the rest of her life because it is her home. And if she didn't... if we didn't let her do that, then she would be able to bring a claim against the estate, and we certainly don't want that.

So she would carry on living in the house and she would be occupying that property under the terms of a trust, a discretionary trust. And that then means that if she did sell the house, at some point, we don't have to pay capital gains tax on the gain, which is good. We get main residence relief, which most people would know as being the position when they sell their own house. So she has the use of the asset for her lifetime. And then on her death, the value of that house is not part of her own estate when we come to calculate inheritance tax. And the reason I mentioned that is that the opposite position is if we had given her a life interest straight away in the will-

Fiona Debney: Yes.

Catriona Attride: ... we would have paid inheritance tax potentially on the property. So we've paid it once when Bill died, but then on Jane's death, the house is valued again, and the value is then added to her estate and then we might tax it again.

Fiona Debney: Yep. That's right. So the discretionary trust simply allows you to give the same effect, but without a double tax hit.

Catriona Attride: Exactly now. And I think it is important to say that if the values of properties are below 325,000 pounds, then inheritance isn't a concern, but in view of the fact that most properties are over, it is. And actually, we dealt with a case a few years ago, exactly this happened. We ended up getting involved on the second death bed, which was a shame because we were too late to fix the problem, but exactly that has happened. Father had died, left the property on a life interest for his unmarried partner, and then she died and basically got taxed twice. An opportunity had been missed to make it more efficient so the family were definitely not happy but unfortunately, by the time we got involved, there wasn't anything we could actually do about it.

Fiona Debney: Yep. And just so that people are aware when we say life interest that is usually giving someone the right to occupy a property for their lifetime, but you have to be very careful with the drafting as well, to make sure, that if that person goes into care, for instance, that that life interest does come to an end at that point. Otherwise, you end up with an empty house that you still can't do anything with whilst that person is alive.

Catriona Attride: Absolutely. And you end up having to pay the rent to them if you then rented house.

Fiona Debney: Yeah.

Catriona Attride: And again, we do come across wills that are drafted in that way. And which again is the benefit of the discretionary trust route, because at the point where say Jane has had to go into residential care, the trustees can exercise their discretion. They can pass the property back, they can sell it, and they can distribute the proceeds to the other beneficiaries who were intended.

Fiona Debney: That's right. It just makes it more flexible. And when we make someone's will and sit down with them today, we are guessing into the future as to what their circumstances will be. And also what their family circumstances will be at the time that they're going to die. So discretionary trusts are flexible and it's important that your will is flexible so that you can meet whatever those circumstances are, or at least give your trustees and your executors, the opportunity to be able to meet it with a bit of thought.

Catriona Attride: Absolutely, absolutely. So I think that probably covers off what we wanted to talk about unmarried couples. So if we now look at the second marriage situation, and actually I'm going to start this off with an example of a case, I had quite a few years now, but it's always stuck in my mind, because it is a really good illustration of what we say to clients, about what can go wrong.

Fiona Debney: Yes. Clients always will say to you, not to my family.

Catriona Attride: Not to my family.

Fiona Debney: And I could retire if I'd taken a penny for every time someone said that to me.

Catriona Attride: Absolutely. And this was a classic, not my family case. So we had mum and dad. Well, it was dad and step-mom actually, second marriage, they'd been married... I mean, I think he was in his 70s when he died, and they'd been together about 20 years. And he had two children, and she had one child. And they had been brought up as teenagers together, really. So they were very much a family. I think the children still had their mother, but it was all very amicable and it very nice. And dad and the step-mom had gone to do their wills. And weren't from what we could ever tell, really, given any advice, went in and told the solicitor what they wanted.

And as you and I would always say, our job is to explain to you the consequences of that potential, and actually advise you on what you should be doing, not what you tell us to do. And so they went in and they did a will which mirrored each other, where they each left everything to each other. And then on the second death, it went equally between the three children. So I'm sure Fiona [crosstalk 00:11:29]. Dad died, and as per the will, everything went to mum, and six months after he died, her daughter, took her off to a solicitor and she did a new will. And Fiona I'll let you have the punchline. What do you think her new will did?

Fiona Debney: Can I guess that the two children of dad were excluded?

Catriona Attride: They were.

Fiona Debney: Yeah.

Catriona Attride: They were. And what was really, really difficult in this case was that dad had brought all of them the money to the relationship. He had a house from his divorce, from their mum, the step-mom really didn't have anything. And so all the wealth had come from their father. And so the clients, the children became my clients and they came to me and they were looking at whether they could do anything about this. And the children at the time, I think were in their late thirties, early forties, independent, no dependency on the deceased.

And therefore we had to be very open with them and say, you are not going to be able to make a claim against this estate because, although we have the inheritance provision for family dependence, which is there for people to meet claims where they haven't been provided for in an estate. The first issue was is that the stepmom hadn't actually died yet, so we couldn't make a claim. But they certainly couldn't have made a claim on their father's state because they weren't financially dependent. And the courts, as you know Fiona, aren't fans of adult children claiming financial provision from a parent.

Fiona Debney: It's not attractive is it? If you're standing there saying, "I'm independent financially, I'm an independent adult, but actually I still want some money from dad or mum." Yeah.

Catriona Attride: Yeah, exactly. I mean, you see the cases in the press where people taking parents to court for financial maintenance and you do think... well, no, sorry, you're 40 years old. I think you can look after yourself now. But yeah. So in the end, there was nothing that they could do. There was no legal route that they could do. This was a moral issue. And they had done what they could, but what really upset them, was that their dad was one of these very traditional... it's all about fairness, and it's all about doing the right thing. And they were just most upset that after quite a long marriage with their step-mom, that she had flagrantly ignored what he wanted, and potentially had been persuaded by her child. I mean, we don't know the situation there, but the result was that when step-mom dies and I don't know whether or not she has now, it has all ended up with one person rather than being divided in three.

Fiona Debney: Yeah.

Catriona Attride: And that is exactly why we don't ever, recommend that second marriages with children from different relationships do their wills in that way. So, Fiona, do you want to talk about what we do suggest they do instead, which would have avoided this scenario?

Fiona Debney: Yes. Well, there are various things. It's a difficult one because you have to slightly burst people's bubbles. And if they've been brave enough to enter into a second relationship and bare their soul, it's quite a hard thing to say, but you've also got to consider this. So, it can take people a while to get their head around this, but we've mentioned them before, but there's something that's called life interest, or Flexible Life Interest Trust, which is known as a FLIT. And so rather than it being discretionary, what this actually then says, it's along the lines of, I am effectively going to lend or allow the person that I'm nominating to use my assets during their lifetime. But as soon as that lifetime ends, or as soon as their ability to occupy a house or whatever it is ends, then at that stage, this is what will happen to my estate. And whatever is left at that point then is split. In the example you gave, it would have been split three ways.

Catriona Attride:  Absolutely. But moreover what you can do is, you can look at your half state just in isolation because if his will had still done that, his half would have ended up going between the three children and she still could have changed the will and send it to the one. So actually if you structure your life interest in such a way that he deals with his children, she deals with her children, you just keep it completely separate. And if there is a desire to perhaps make sure that the children are treated equally, what you can do is look at the ownership of the property, and maybe put it in a situation where she's got one third and he's got two thirds so that it ends up being divided fairly.

Fiona Debney: Absolutely. Now people often come into me and say that they want to make the same will. We don't make the same will, everybody has their own will.

Catriona Attride: Exactly.

Fiona Debney: Wills may reflect each other. So known as mirror wills. There is something called a mutual will, which we'll just discount now, but they [crosstalk 00:16:53].

Catriona Attride: Just to interrupt on that case that we looked at, I mentioned we did actually look at whether or not we could run a mutual well argument, but it wasn't a goer.

Fiona Debney: Yep. So a mutual will is effectively where you share the terms of an agreed will between you, and there is a side contract to say that you can't disturb the terms of that, but it's horribly complicated and it's not something people should enter into. So no. So life interest trust is the much better way to go. You are effectively saying, I am still thinking of you, but I am also protecting my bloodline.

Catriona Attride: Yeah, [crosstalk 00:17:38] yeah. I think the other thing that I would just sorry to add is that this isn't always about the surviving partner doing the dirty either. This could be, just as simple as, the first to die... so the second... Yeah, the first spouse dies, the survivor is there. And then the survivor meets someone else. And if they then remarry, then on their will, any will they had, would be revoked. And so the children of the first to die, all written out inadvertently. So this isn't always because it's a deliberate, we would always say malicious act, it can just be because life happens and stuff happens because there's no blood link between step-mom and step-children and therefore they don't get any automatic entitlement.

Fiona Debney: That's right. And what we might also ask people to consider, is to then take some financial advice as well, where if there are competing interests in families, whether or not some of those interests can be dealt with by way of having life insurance that pays out, so that everybody on the death of the person feels, that they have been treated fairly.

Catriona Attride: And I think fairness is the real crux here, isn't it?

Fiona Debney: But fair isn't always equal either.

Catriona Attride: No, it isn't.

Fiona Debney: So it is fair. Yes. And that's a different thing. And that sometimes is hard to get your head around.

Catriona Attride: Yeah, definitely, definitely. So I think that the two things that we've covered there are quite important. And actually, I think it's worth just saying that that structure of will that we've just talked about, is also pretty much along the lines of what we would suggest... and I'm using speech bubbles here, normal, conventional, married couple would do. Because again, we've seen cases where, husband and wife are married and I had one once where the husband died quite young, and everything had automatically passed to the wife and they had two children. And she then went on and remarried.

Catriona Attride: And then she, unfortunately, she passed away. But her new husband, they'd done new wills and she just left everything to him. And so everything went to him, and then he made no provision for their children. And the problem was as their children were actually just into adulthood at that point as well. So again, no one would ever deliberately disinherit their own children, certainly, but what I find that couples like is that protection and that reassurance, that whatever happens in the survivor's life, it isn't going to have a negative impact on their children.

Fiona Debney: That's right.

Catriona Attride: And even if they end up spending all the money, I always say, an inheritance is a privilege, not a right. And if you've had to get through that money, because you've needed it to live on, so be it, if there's nothing left at the end of the day, that's fine.

Fiona Debney: Yeah.

Catriona Attride: But if there is something left after the end of the day, you want it to go to the right people. And the reassuring thing about this structure is that to all intents and purposes, that asset is treated like your own during your lifetime. So it is your home. I mean, you're responsible for maintaining it, you're responsible for looking after it, you don't pay rent to live there. If you want to move home, the house can be sold and the trust money can be reinvested for another property.

If you do end up in a situation where you sell the property and you need to go into residential care, actually, if the will is written flexibly, the income can be used to fund your care in a... so it is not a case that you are sacrificing yourself for your children's financial gain, but it is just putting a ring fence around the assets, to make sure that after the survivor has finished using them, they end up going to the bloodline. And in the example, I've just given the shared bloodline, because the idea for that second wife, she had realized the consequences of what she done, are you that certainly wouldn't have ever been her intention?

Fiona Debney: Nope, that's right. And I think you've would probably agree. A lot of people come in when they're talking about wills on the basis of, I don't want to pay tax, I don't want the government to get my property, et cetera. But when you actually start talking to them, what drives them is, making sure that their family, get what they've worked hard to accumulate during their lifetime. And what we are there to do then, is to advise them as to the best, but most flexible way, because trying to make everybody happy sometimes in a will, just doesn't work. You end up with no one being happy.

Catriona Attride: Absolutely. I mean, I've seen it work in practice. My granny died 30 years ago, she was very young, she was only 60 when she died, and her and my granddad had had a lovely marriage, a great marriage, but she had always said that when she wasn't there, she didn't want her money going off to his floozies. Because she was adamant he wouldn't be able to live on his own and he would always have to have a female companion, and that I'll be damned if she's getting anything. And this was back in the late 80s, early 90s. In some way, she was sort of ahead of her time in terms of the planning we talk about now, but she did her will and she left her half of the house to granddad for life, and it almost gave him some comfort because over the years, he did have his floozies.

He never married any of them. But because actually, I don't think he ever would have done anyway, because she was his wife, but he had his relationships, but he almost had a comfort, knowing that her bit was okay, and that he left his half to their four children as well, and as it was anyway. So, nothing [inaudible 00:23:54] but it gave him a comfort to know that he didn't have to be mindful of making sure that her half went, how she wanted it to go, because for him that was really important that her half went to her four children. That was what she wanted. So I think it does have a benefit to the surviving spouse as well, because it gives them that sense of, right I don't need to worry about that bit, because it's already been taken care of. So if I do meet someone else, there's only ever a discussion about my half, because that doesn't belong to me.

Fiona Debney: Yeah. Quite. And the same goes, if you're running a business and you make bad business decisions through nobody's fault, your business may go under, again your half of the house could have charges attached, but that other half isn't yours as such. So again, it's protected and could still pass down to the children.

Catriona Attride: Absolutely. And then one final benefit I'm just going to talk about with this sort of structure will in a married person situation is, that if... and this is where your main asset is your house, where you've got lots of money, it's not such an issue because you would be funding care anyway, but I'm going to talk about care fees. And if dad has died and he's left his half of the house in trust, and mum then needs to go into residential care in the future, only her half of the house can be used to assess her care fees. And for people where their main asset is their house, it's really important to them, that that passes to their children, isn't it?

Fiona Debney: It is. And it doesn't mean that if the house is rented out, like you said before, that the income can't be used to contribute towards the care fees, but that's then a decision that is taken in those circumstances and can work very well, or the decision might be no, there's no requirement for that. And mum's money gets utilized, but then dad's half the house still passes down to the children.

Catriona Attride: Absolutely. And the reason I make the point about this is really most relevant where the house is the main asset is because, if you've got hundreds and hundreds of thousands of pounds in savings, then you're going to be funding your own care anyway.

Fiona Debney: Absolutely. 

Catriona Attride: Exactly.

Fiona Debney: House is only looked at when the money runs out, and this might sound a bit harsh, but care homes or the local authority, don't mind where the money comes from. So if dad's money runs out first, but the family decided they will pay, they don't care. That's good. They're paying and the house could be protected, but this just adds the extra protection where there isn't that cash availability within the wider family.

Catriona Attride: Yeah, definitely. I mean, I think there is also the point that because we use flexible powers within the wills that you could decide that you do want to use the capital in the house, because I think that's the only other thing I would just say on the care planning side, is that quite often people have in their head, "Oh, we don't want to pay for care. We want the local authority pay." You do get what you pay for. And actually, it might be that your family think that they would rather pay and have a slightly more comfortable experience and not all. I mean, some local authority care is great, but there is no doubt that in the private sector, you are going to be in a slightly more comfortable environment, and perhaps quality of the meals, the better the care might be a bit more improved. There might be better ratios. So I think the key again, and you and I, if someone goes back to all our podcasts and counts the number of times we use the word flexibility, but it is all about flexibility, isn't it?

Fiona Debney: Yes. And again, this is where we would encourage people to take the time, to sit down and go through all of these options with someone like you or me, discount them if you want to, but at least you've had the opportunity to think about it. And then you'll, we'll hopefully when you make it today, is flexible enough to cope with whatever life throws at you in the future up until the point of death.

Catriona Attride: Absolutely. So I think what we've done is we've given quite a good summary today, talk around, the use of trusts in wills in a particular situation to achieve particular things. So one is to make sure that unmarried couples are provided for in a flexible, protective way, which is as tax-friendly, as it can be in view of the fact it's quite an unfriendly tax situation. In terms of the second marriage, and making sure that we don't disinherit children inadvertently, or deliberately, as the case I described. And then also how the flexible trust can also have advantages from a care fee point of view.

Fiona Debney: That's right. Yep. So again, trusts are not something to be afraid of. They might sound complicated, but when you actually break them down, they are used, and have been used for many, many years for a good reason.

Catriona Attride: And I think what I would always say is, when I have clients who come and talk to me and they'll say that they've either had a bad experience in their family of trust, or they know someone who has, I will always say trust is only as good as the person who's prepared and who is administering it. And therefore it is important that... it's a little bit like driving a car, you want someone who's passed their driving test to be taking you out rather than someone who's sitting in the car for the first time, or who isn't very expensive and has a terrible track record with accidents. And you need someone who specializes in this and historically, you and I would have seen through the years, this sort of work used to be done in little high street practices, where the person doing it might do a bit of conveyancing, might do a bit of family law, might be do the typical family solicitor, and they didn't specialize.

And I would say probably since mid to late 90s, and certainly now, people do very much specialize in their field. And it's very rare these days to find dabblers as we call them. But if you do come across one, I wouldn't be using them for this sort of thing, because that is a recipe for disaster.

Fiona Debney: It's too important. And doing a will is an emotional investment as much as anything, because you spend a lot of time thinking about your own death and the death of the people around you, because you will we'll cover what happens if I go first, what happens if I go second, what happens if we all go together? So it's not a comfortable experience, but it needs to be an experience that sets it up for the future in the best way possible.

Catriona Attride: Yeah, definitely. Definitely. Well, Fiona, thank you again for joining me today

Fiona Debney: No thank you

Catriona Attride: And anyone listening, if you've got any questions at all, then do contact either one of us, we're always happy to have an informal chapter on this sort of stuff.

Fiona Debney: Absolutely. Yeah.

Catriona Attride: Thank you.

Fiona Debney: Thank you.

Catriona Attride: Thank you for listening to talking family and wealth.