Lack of action around inheritance tax planning within blended families could mean wealth isn’t passed on as intended, according to new research from financial planning firm abrdn.
Almost half (47%) of blended families have not changed or updated their will after getting divorced, getting re-married, having children or becoming a step-parent.
This is despite more than half of those from a blended family (51%) saying that planning to pass on wealth as inheritance is more important in non-conventional family set ups, like blended families.
Many parents in blended families don’t agree on how their wealth will be passed on (40%), compared with 30% of those from “conventional” families. One in seven (14%) of those from blended families admitted they have not broached the subject at all with their partner.
Meanwhile, a fifth (21%) of those from a blended family have not spoken to anyone at all about where their wealth will go when they pass away and how it will be managed.
abrdn’s research also found that more than a quarter (27%) of respondents from blended families did not inherit the wealth they were expecting from their parents. In contrast, 17% of respondents from non-blended families did not inherit the wealth they were expecting.
Shona Lowe, Financial Planning Expert at abrdn, said:
“Adding blended family dynamics into the mix adds to the complexity as you look to balance lots of factors, but planning for and talking about this is vital if you want to make sure you will pass on as much as you can to the people you choose.
Often a key concern in blended families with children on one or both sides is how to pass assets on to your current partner but be confident that your children will inherit when your partner passes away. These types of ‘blended families’ could consider including a trust in their Will. This could either be one where the estate passes as a whole into that trust and trustees decide how and whether to distribute it between the partner and children potentially over many decades, or it could be that some or all of the estate passes into what’s called a Life Interest Trust. This allows your partner to benefit for the rest of their life but for you to say what happens when they pass away. Another way to ensure your family is fully supported is through gifting throughout your lifetime, though you should be aware of the rules and allowances in place.”
abrdn’s research also found that a third (30%) of those in blended families have not spoken to anyone about where their wealth will go when they pass away because they don’t think their inheritance is big enough to need advice.
Yet, when asked to value their current wealth, on average individuals estimated they would have a total of £354,000 in assets – which is above the inheritance tax threshold of £325,000. In London, the average estimation jumped to £556,999.
“Many people will underestimate the value of what they would be passing on, or don’t fully appreciate how inheritance tax works, and as a result may not be aware they have a potential inheritance tax issue, or of how large that bill could really be.”
One in 10 (10%) think inheritance tax is an awkward and taboo topic to discuss while many want to avoid the subject of where their wealth will go after they pass away altogether, with one in six (16%) saying they would rather discuss any mental health problems than talk about passing on their wealth.