What do typical Wills for second marriages look like? Many clients who are married for the second time put off making a Will, because it seems too complicated to try and balance the interests of their new spouse with those of their children from their first marriage, and also sometimes children from a new relationship or marriage. Clients usually want to provide for their second spouse comfortably during their lifetime, but to make sure that their own children inherit their assets on their spouses’s death. Leaving assets to your second spouse outright in this situation is a roll of the dice that many testators would prefer to avoid, as there are then no guarantees about what will happen to your assets after your death.
Remarriage revokes existing Wills
It is important to remember that marriage revokes a will, and so any pre-existing Wills that you may have had in place are likely to have been revoked by your remarriage, unless they were explicitly made “in contemplation of marriage”.
Is there such a thing as ‘typical Wills for second marriages’?
The good news is that the law offers an excellent solution to making Wills for second marriages, which can be tailored to the individual family’s circumstances. Typical Wills on a second marriage would involve putting in place what is called a life interest trust for the benefit of the surviving spouse, on the first death. This allows the surviving spouse the right to receive the income from the estate of the first to die for their lifetime, and it also entitles them to the right to live in the marital home, for life. On the second death, the capital belonging to the first to die has meanwhile been ring-fenced within the life interest trust for the ultimate benefit of the children of the first to die.
A life interest trust ensures that you can leave your second spouse comfortably off during their lifetime, and that ultimately your own children will inherit your capital. It gets around the concerns people may have about the worst case scenario of their spouse or partner meeting somebody else after their death, and eventually leaving all of their – and also all of your – assets to them, or perhaps to their own children instead.
Does this only work for second marriages?
Using a life interest trust is also a perfectly valid approach for couples on their first marriage who want to take a cautious approach to possible future changes of circumstances. In a straightforward family situation, a life interest trust will again successfully guard against sideways disinheritance of the children if one of the couple was to form a new relationship or remarry after the first death.
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Should we be joint tenants or tenants in common?
In order for a life interest trust in your Wills to work, it is essential that you own your house as ‘tenants in common‘ and not as ‘joint tenants’. Otherwise, the half share of the house belonging to the first to die will automatically and instantaneously pass to the survivor outright on the first death, bypassing the terms of the Will and negating its asset protection benefits. If you are currently joint tenants, it is straightforward to sever your joint tenancy when you are making your Wills.
What about inheritance tax planning with Wills for second marriages?
A life interest trust can be used for inheritance tax planning purposes very successfully on a second marriage. It can be a useful way to remove assets from the joint estate completely free of inheritance tax, if the surviving spouse already has sufficient assets, and does not need to benefit from all of the assets in the estate of the first to die.
The surviving spouse would usually be one of the trustees of the trust, which gives them a say in how the trust is run, often along with the children of the first to die, who will also be the capital beneficiaries.
If the surviving spouse did not need the income from all of the assets then the trustees could agree to terminate his or her interest to some extent in the residue, which would allow assets to pass out to the children. When the assets pass into the trust for the surviving spouse, the transfer is ‘spouse exempt’ for inheritance tax purposes and so there is no inheritance tax to pay. When the surviving spouse’s life interest is partially terminated, this is a ‘potentially exempt transfer’ by the surviving spouse for inheritance tax purposes, so as long as they survive the termination by seven years, the assets will pass to the children of the first to die completely inheritance tax free. In larger estates this can be a very useful inheritance tax planning technique.
How flexible is the trust?
Usually, the trust is drafted with sufficient flexibility (a) to allow the trustees to make capital advances to the surviving spouse if appropriate, for example if he/she needed something specific; (b) to allow the surviving spouse to move house or downsize if they wished; and (c) to allow the trustees to terminate the surviving spouse’s interest and pass capital out to the children if the spouse ceased to live in the house at any point, for example if they needed to move into a care home.
Should I remarry for inheritance tax purposes?
If one or both of you has been widowed previously and you have since remarried, it may even be possible to take advantage of not two but three or even four inheritance tax free nil rate bands (currently £325,000 per person). This is because you may each be able to benefit from your predeceasing spouse’s unused nil rate band.