Estate planning is becoming more complex as our family relationships become more complex.
The time to think about making sure you achieve your goals for distribution of your estate is well in advance of your death.
It is important to look at issues such as protection of your assets, family breakdowns, tax consequences and protection of your children's inheritance.
The use of an estate planning tool called a Life Interest can be very helpful in many situations, especially where couples are in their second or third marriages and have children from each marriage.
Couples who have married later in life and who have brought assets into the marriage may wish to make sure that they are able to pass their assets to their respective children.
These assets are often kept separate, except for the couple’s major place of residence.
A life tenancy allows an individual to ensure that their spouse is provided for for his or her lifetime. Then once the surviving spouse has passed away the testator's share of the asset is then passed to the intended beneficiaries as stated in their Will – usually to biological children from an earlier marriage.
The Life Interest is a way of ensuring that the whole of your estate does not pass to your second or third spouse and just as importantly does not then become the estate of your surviving spouse. A Life Interest can make sure that your share of the primary residence can still pass to your children without any sacrifice of the standard living of your surviving spouse.
However, most couples hold the title of the primary residence as joint tenants - a type of ownership of property where two or more owners hold the whole of the property jointly so each owner has an equal entitlement and interest in the property.
The most relevant aspect of joint tenancy is that upon death of one of the joint tenants the surviving joint tenant automatically acquires the deceased interests. The effect of this is that the interest that belongs to the deceased joint tenant will not form part of his or her estate.
This obviously is not a problem for couples who have only been married to each other, but can be problematic for those who have had multiple marriages.
In order to create a Life Interest it is often necessary to sever the joint tenancy and ensure that spouses hold the interest in their property as "tenants in common".
The difference between tenants in common and joint tenancy is that should a tenant in common pass away the share of the property owned by the deceased spouse follows their Will. Tenants in common allows a spouse to create a Life Interest for the benefit of the surviving spouse over their share of the property, while that spouse still owns the remaining share.
Then once a life tenant has died, the property passes half in accordance with the first spouse's estate and half in accordance with the second spouse's estate to their intended beneficiaries.
This most common estate planning problem can be resolved quickly, efficiently and cost-effectively.