Joint Home & Stepchildren Claims: NZ Estate Law & Finding Independent Financial Advice

Stepchildren’s Inheritance Rights: A Growing Source of Legal Friction

The increasing prevalence of blended families is bringing into sharp focus a legal disparity concerning inheritance rights: stepchildren often find themselves with limited recourse when excluded from a stepparent’s will. While biological children are generally entitled to a claim against a parent’s estate under the Family Protection Act 1955, stepchildren’s claims are typically restricted to situations where they were financially dependent on the stepparent at the time of death.

This legal gap can lead to significant financial hardship and perceived unfairness, particularly when a parent leaves their estate to a spouse who subsequently fails to provide for the stepchildren in their own will. The Law Commission acknowledged the issue in its 2021 Succession Review Issues Paper, but did not propose new avenues for stepchildren to directly claim against a stepparent’s estate, recognizing that they have already had the opportunity to claim against their biological parent’s estate.

Limited Legal Avenues for Stepchildren

Currently, stepchildren seeking to challenge a will that excludes them have limited options. One potential route is a “mutual wills” claim. This arises when a parent and stepparent initially created wills that provided for each other and their respective families, with an understanding that these wills would remain unchanged. If the stepparent later alters their will to exclude the stepchildren, a claim can be made arguing that the original agreement was binding.

However, proving the existence of such a binding agreement can be challenging. The legal landscape is further complicated by the fact that assets held jointly between a couple typically pass directly to the surviving spouse through survivorship, bypassing the deceased’s estate altogether. This means that even if a stepchild believes they were promised a share of the estate, the assets may not be subject to a claim if they are held jointly.

Jointly Held Assets and Potential Claims

As Michelle Pope, principal trustee at Public Trust, explained, the legal ownership structure – whether assets are held jointly with equal or unequal shares – is crucial. If property is jointly owned, it generally avoids probate and passes directly to the surviving owner. If not, the deceased’s share becomes part of their estate, potentially opening it up to claims.

While a direct claim against a stepparent’s estate is often difficult, the stepchildren may have recourse through the stepparent’s estate itself. Pope notes that the estate could potentially make a claim to “claw back” assets, which could then become subject to a claim from the stepchildren, particularly if they believe they were not adequately provided for in the deceased’s will. This scenario is more likely to arise when the deceased had a clear will outlining their intentions.

The Risk of Informal Agreements

The case highlights the dangers of relying on informal agreements or assumptions regarding inheritance. The individual in question, whose partner recently passed away, was initially told by their legal firm that a claim from their stepchildren was “not possible,” only to have that position revised. This underscores the importance of seeking professional legal advice to understand the specific circumstances and potential risks.

The situation is further complicated by the emotional dynamics often present in blended families. In one instance, a grandchild overheard stepchildren discussing a potential legal claim to force the sale of the family home, causing significant distress to the surviving spouse and their own children. While such a forced sale is “probably not” possible, according to Pope, the mere threat of legal action can be deeply upsetting.

Navigating Financial Advice and Protecting Assets

The case also touches upon the complexities of securing truly independent financial advice. Many financial advisors are compensated through commissions, which can create a conflict of interest, potentially leading them to recommend products that generate higher fees rather than those best suited to the client’s needs.

To avoid this, individuals can seek advisors who charge a fee for their services, either by the hour or as a flat rate for financial planning. However, all advisors are legally obligated to disclose their remuneration and potential conflicts of interest as part of the advice process. Nick Hakes, chief executive of Financial Advice NZ, encourages clients to ask detailed questions about an advisor’s fees, experience, and how they have assisted clients in similar situations.

The Importance of Estate Planning

The increasing prevalence of blended families underscores the critical need for careful estate planning. Pope emphasizes that having a will can help reduce the risk of legal disputes and provide clarity for families, although it cannot entirely prevent claims from being made.

Given the complexities involved, professional legal and financial advice is strongly recommended to ensure that an estate plan accurately reflects an individual’s intentions and minimizes the potential for future conflict. Failing to do so can leave vulnerable family members – both biological and stepchildren – facing financial uncertainty and legal battles.