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Adviser Workshop: How to advise clients with second families

by Jun Merrett on Nov 29, 2012 at 14:08

Adviser Workshop: How to advise clients with second families

Paul Beasley (pictured), Elaine Gwinnett and Anna Sofat share their insights on advising clients with two families.

Paul Beasley

Managing director, Richmond House Group

I have a couple of clients who are hitting retirement and have two families, so we need to work out how to deal with their affairs.

There are particular issues with how to structure a will. Sometimes it’s a case of identifying who has brought the most into the second relationship and finding out if that needs to go to their original children or should be split equally with their second family.

Providing for stepchildren

Clients with a second family tend to bring out diplomatic problems rather than financial ones. Advisers have to tread carefully. I have dealt with cases in which one partner is taking on a stepchild in the new relationship and you have to be diplomatic about school or university fees, as one party may not want to take on the other party’s children financially.

We use a lot of cashflow modelling, which can help explain situations and demonstrate to them that they have more than sufficient income and assets to support the two families and do the same for their stepchildren as they do with their children. I think cashflow modelling is becoming more prevalent in these scenarios.

We encourage clients with older children to be open about their financial affairs because this can help to avoid challenges to their wills and conflicts when they die.

We’ve had situations in which some children are involved in the family business but stepchildren are not. The challenge is how to square that so you leave the bulk of the business to the children running it and decide whether to compensate the stepchildren with other assets. It can open a real can of worms.

Elaine Gwinnett

DIrector, Forty One Consulting

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2 comments so far. Why not have your say?

Tony Marsden

Nov 29, 2012 at 14:57

I had this with close friends. I don't think there is a perfect solution and of course it's always about the individuals but for what it's worth...

Both wanted to protect what they had brought to the party on their death but had forgotten this would deprive the survivor of capital to provide an income (they have life cover but they aren't particularly wealthy). Dividing the home and maybe making it subject to a trust was one option but again would deprive the survivor of the option to trade down and live on capital.

I'm glad to say there was a change of attitude with this very loving couple when they realised the drive to protect capital for children would probably deprive the survivor of the comfortable life each wants the other to have. Matters are still to be concluded but most likely life policies in trust to provide the children with a decent amount over the next thirty years or so (roughly age 75) and review the options in older age.

Of course the biggest fear is not one of distrust of each other but of one being widowed, re-marrying and the estate eventually being split with another party. The life insurance helps counter this but there is also now an agreement that if widowed and considering marriage they would first seek advice to protect the interests of the deceased's children (basically a pre-nup). I have recommended they see a solicitor now re drawing up something now to cover this situation .

As I say, not a perfect solution but hopefully reasonably sound.

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Michael Middleton

Nov 30, 2012 at 06:22

Sensitively

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