Blended families and digital assets — two documents most wills miss

‍If you have children from an earlier relationship, a will alone will not protect them. It can be challenged, it can be overridden by a relationship property election, and it is revoked entirely if you remarry. What works is a pair of documents that sit underneath the will: a contracting-out agreement, and, in most blended families, a trust. And separately, whatever your family looks like, there is one document almost nobody has, and every executor needs: a list of your digital assets and devices.

Key points

•    After three years together, the family home is relationship property even if one of you owned it first.

•    The exception is a home held in a trust — which is why the trust does the work a will cannot.

•    A surviving partner can elect a relationship property division instead of taking under the will.

•    A contracting-out agreement fixes what is shared and what is separate, before anyone dies.

•    Your executor cannot find, access or close digital assets without a written list of them.

Topic one — blended families: why the will is the last document, not the first

Three separate statutes decide what happens to your property when you die, and only one of them is about your will. The Property (Relationships) Act 1976 decides what was yours to leave. The Family Protection Act 1955 lets your family ask a court for more than you left them. The Wills Act 2007 decides whether your will is even valid, and it says that marriage or a civil union revokes an earlier will unless the will was made in contemplation of it.

Most blended-family estate plans deal with the third statute and ignore the first two. That is the whole problem.

Peter, Diane, and the lottery nobody agreed to enter

Peter is 64. He has two adult children from his first marriage. He owns his home, worth $1,200,000, bought long before he met Diane. Diane is 61, has one adult daughter, and brings $180,000 in savings and KiwiSaver. They have lived together for six years. They have mirror wills: everything to the survivor, then equally between all three children.

It sounds fair, and both intended that to happen. Here is what happens.

•    The home is no longer just Peter’s. After three years together, the family home is relationship property under the Property (Relationships) Act even though Peter owned it before the relationship. The default division is 50/50, regardless of who paid for it.

•    If Peter dies first, Diane can choose. A surviving partner may elect to take a relationship property division instead of what the will gives them, whichever is better for them. Peter’s children cannot stop that election.

•    Whatever Diane then owns is hers absolutely. She can make a new will. She can spend it. And if she remarries, her existing will is revoked by law, so unless she makes a new one, her estate passes under the intestacy rules to her new husband and her own daughter. Peter’s two children will receive nothing.

•    Reverse the order of death and the outcome reverses with it. If Diane dies first, Peter ends up with everything, and the same risks run against Diane’s daughter instead. ‍

The one thing most people get wrong

In a blended family with mirror wills, the order of death determines who inherits. Not the wills. Not what the couple agreed. Not what either of them wanted.

Peter and Diane did not sit down to agree that whoever lived longer would decide the fate of the other’s children. But that is exactly what they signed. Fate and luck should not be doing this work, and they do not have to.

The same couple, planned properly

‍Now run Peter and Diane again on the same facts, but with advice taken early. Two documents, signed within months of moving in together.

The contracting-out agreement records three things:

•    if they separate, each of them keeps the assets they held at the date of the agreement;

•    the home is to be sold to a new trust settled by Peter, at its then value of $1,200,000; and

•    Peter’s interests in that trust, and the $1,200,000 the trust owes him for the purchase price, are his separate property.

That last point is doing more work than it looks. Because the trust is settled during the relationship, Peter’s powers under the deed could themselves be relationship property — that is what the Supreme Court held in Clayton v Clayton [2016] NZSC 29. This is why the agreement records his interests in the trust, and the debt owed to him, as separate property. The agreement is what closes that door.

The trust deed records three more:

•    Diane has a life interest in the home — she may live there for the rest of her life, on the basis that she pays all outgoings on it;

•    on the death of the survivor of Peter and Diane, the trust fund is divided equally between the three children; and

•    future partners of either of them are excluded as beneficiaries.

Now run the same two scenarios that produced the lottery.

If Peter dies first. The home is not his to leave, so it is not part of his estate, and there is nothing there for a Family Protection Act claim to reach. It is not relationship property either, so Diane has no relationship property election to make against it. What she has instead is precisely what the two of them agreed she should have: a home for the rest of her life. She cannot sell it, spend it or give it away, because it was never hers. If she remarries, her new husband cannot claim it — he is excluded as a beneficiary, and the house is not Diane’s to be claimed against. On her death, the trust fund is divided equally between all three children, Peter’s two and Diane’s one, exactly as they intended.

If Diane dies first. The house is still in the trust. Peter cannot be compelled to share it, and the three children remain the ultimate beneficiaries. The plan can still be defeated — but only if Peter, acting with his co-trustees, resolves to distribute the trust fund to himself. That is a deliberate decision, taken in the open, by a trustee who owes duties under the Trusts Act 2019 and can be held to them. It is not the order of death, nor is it luck. An independent trustee and trust objectives that record what the couple intended make it harder still.

Same two people. Same $1,200,000. Same intention. The difference is that the outcome now turns on decisions somebody has to make and can be answerable for, rather than on which of them happens to die first.

One loose end: the debt back

The $1,200,000 the trust owes Peter is his separate property, which means it is an asset of his estate until it is dealt with. Peter deals with it in two ways at once.

•    His will forgives whatever remains unforgiven of the loan balance at his death.

•    He starts a gifting programme, gifting the loan to the trust at $27,000 a year.

The two work together. At $27,000 a year, the loan will not be cleared in Peter’s lifetime, so the will clause carries the balance. Each year of gifting reduces what remains in the estate, and the will disposes of the rest to the trust rather than leaving it as cash for someone else to argue over.

One thing to watch on the gifting. The $27,000 figure applies to gifts made more than five years before an application for the residential care subsidy. Gifts within that five-year window are assessed at a much lower allowance and can be added back. The gifting programme therefore needs to be planned in line with the subsidy rules as well as the estate — see our post on what the gifting limits actually allow.

The rest of this section explains how each of those two documents contributes.

Step one: a contracting-out agreement — normally essential

‍A contracting-out agreement under section 21 of the Property (Relationships) Act allows a couple to decide for themselves what is shared and what is kept separate, rather than accepting the statutory 50/50 default. In a first relationship, it is often optional. In a blended family, where each partner arrives with assets and children already attached, it is essential.

It matters for a reason people do not expect. Separate property does not remain separate; it quietly becomes relationship property over time as it is mixed in. An inheritance spent on renovating the family home stops being an inheritance. Six years of joint mortgage payments on a house one partner owned before erode the line between them. An agreement draws that line while both of you can still remember where it should be.

Two practical points. Each partner must obtain independent legal advice from their own lawyer before signing; this is a legal requirement that cannot be waived. And the earlier it is done, the simpler it is, because there is less intermingling to untangle.

Step two: a trust — normally essential too

‍A contracting-out agreement settles what each of you owns. It does not stop a court adding to what you leave. Under the Family Protection Act, a spouse, partner, child, grandchild, maintained stepchild, and in defined circumstances a parent, can apply for further provision out of your estate where you breached a moral duty to support them. The leading modern authority is Williams v Aucutt [2000] 2 NZLR 479 (CA), and two things come out of it that clients rarely expect: a claim can succeed even where the claimant is financially comfortable, because support includes recognition of belonging to the family; and the court will not rewrite the will, only repair the breach and go no further.

The word doing the work in that paragraph is estate. A Family Protection Act claim is a claim against what you owned when you died. Assets properly held in a family trust are not owned by you, so they are not part of your estate, and they are not there to be claimed against.

The same word explains the relationship property point above. The family home becomes relationship property even where one partner owned it beforehand, without a contracting-out agreement providing that it is to be owned by a trust. That single exception is why, in a blended family, the trust is not an alternative to the agreement. It is the other half of the same plan.

What the two documents do together

The contracting-out agreement determines, between the two of you, what is shared and what is separate — and removes the relationship property election as a route around your will.

The trust takes the assets you want your own children to receive out of your estate altogether — so they are not exposed to a Family Protection Act claim, not exposed to a future remarriage, and not dependent on which of you dies first.

The will then does the job it is good at: distributing what is left, and appointing the people who will carry it out.

Being straight about what a trust does not do

‍A trust is not a wall, and any adviser who describes it as one is overselling. Two qualifications matter.

•    Section 182 of the Family Proceedings Act 1980 allows a court, on the dissolution of a marriage or civil union, to vary a trust settled during that relationship. It does not apply to de facto relationships, but it is a real limit on trusts settled by married couples.

•    The Trusts Act 2019 changed the duties. Beneficiaries are presumptively entitled to basic trust information, and trustees have mandatory duties they cannot contract out of. Deeds written before 2019 frequently do not reflect this. If your trust predates the Act, it needs to be reviewed and updated.

None of that makes a trust the wrong answer for a blended family. It makes it an answer that must be properly set up and run. ‍

Where we can help

‍We prepare contracting-out agreements and trust-based estate plans as a single exercise rather than as separate jobs years apart, because in a blended family the two documents only work when they are drafted to gel together. Where a trust will co-own property with a partner, a separate property-sharing deed is also required — a trust cannot itself be a party to a contracting-out agreement.

Topic two — the list of digital assets your executor cannot do without

Now to something entirely separate, and it applies whatever your family looks like. Ask most people to list their assets and they name the house, the KiwiSaver, the car and the bank accounts. Almost nobody names twenty years of family photographs, the email account that every password reset runs through, the online business, the domain name, or the cryptocurrency wallet.

The essential document here is not a clause in your will. It is a list. A list of digital assets and devices is simply a record of what you have, where it is, and what should happen to it. It sits alongside your will, your enduring powers of attorney and any trust planning, so that your executors have practical information as well as legal authority. Legal authority without practical information is an executor holding a grant of probate and a locked iPad.

What belongs on the list

‍•    Online accounts — email, social media, messaging, cloud storage, and any online business or website. ‍

•    Financial and crypto — online banking, investment platforms, digital currencies and wallets, loyalty programmes and reward points. ‍

•    Devices and storage — phones, laptops, tablets, external drives, USB sticks, e-readers, cameras.

•    Subscriptions — streaming, software, apps, domain names, hosting, recurring memberships.

•    Important files — tax returns, insurance policies, legal documents, photographs and video held online or on a device. ‍

•    Passwords and access — where your passwords are stored. Not the passwords themselves.

Never put passwords in your will

A will becomes a public document once probate is granted. A password, a PIN, or a seed phrase written into it can be read by anybody who obtains a copy from the court file.

The list records where the credentials are kept — the password manager, the safe, the sealed envelope with your solicitor — and is stored separately from the will and updated as things change.

What happens without one

‍•    Things are lost permanently. Photographs, videos, personal documents and financial records held online may never be recovered. Tax returns, insurance policies and legal documents can be missed entirely.

•    Accounts cannot be managed. Your executor cannot find every account and subscription, cannot cancel or transfer services, and faces delays in closing or securing what they do find.

•    The risk of fraud rises. Accounts that stay open and unattended are exactly the accounts nobody is watching. Unauthorised access and identity theft go unnoticed for months.

Cryptocurrency is the sharpest version of the problem

‍In Ruscoe v Cryptopia Ltd (in liquidation) [2020] NZHC 728, the High Court held that cryptocurrencies are property in New Zealand law and were held on trust for account holders after the exchange collapsed. But being property does not make it reachable. Crypto in a private wallet is accessible only through the private key or seed phrase. If nobody knows where the key is recorded, the asset is gone. No court order, no grant of probate and no exchange can recover it.

By contrast, most ordinary online accounts are not property at all. An iTunes library, a streaming subscription, an email account, and a social media profile are usually licences granted to you personally under terms of service that end on death and are not transferable. What may be property is the content, the photographs, the manuscripts, the business records, and the goodwill in a commercial account’s following. The list is what tells your executor which is which.

Where we can help

‍A list of digital assets and devices can be prepared online through our partner site, DYOdocs, on your own in about ten minutes, with your answers saved as you go. Because your digital life changes constantly, the list is designed to be returned to and updated whenever you open or close an account or replace a device.

What you can do — and where we can help

If your family is blended

‍•    Do the contracting-out agreement first and do it early. Fewer intermingled assets mean a simpler agreement and a calmer conversation. Each of you needs your own lawyer before signing.

•    Ask whether a trust fits, rather than assuming it does or does not. The question is what you want your own children to receive with certainty, and whether that can survive a claim, a remarriage, or an unlucky order of death.

•    Review the will after every life event — a marriage or civil union revokes it outright unless it was made in contemplation of that marriage. ‍

•    Tell the children. Most claims are brought by people who were surprised. Being told in advance does not remove the right to claim, but it removes much of the motive.

Everybody

•    Make the list of digital assets. It is the cheapest document in any estate plan and, for the executor, often the most useful. ‍

•    Record where the credentials live, never the credentials themselves.

•    Deal with any cryptocurrency explicitly and make sure at least one person you trust knows the record exists.

•    Diarise a review. A list that is three years old is a list of accounts you have closed.

Questions clients actually ask us

We each have our own children. Are mirror wills enough?

‍Usually not. Mirror wills leave everything to the survivor, who is then free to change their will, remarry, or spend the lot. Whichever of you lives longer effectively decides what the other’s children receive. If that is not what you intend, the plan needs a contracting-out agreement and, in most cases, a trust.

Can my stepchildren claim against my estate?

‍They can if you were maintaining them. A stepchild being maintained by the deceased immediately before death is within the class entitled to apply under the Family Protection Act. Whether a claim succeeds is a separate question, decided on the basis of moral duty.

Does my will still work if I remarry?

‍Usually not. Marriage or a civil union revokes an earlier will unless it was expressly made in contemplation of that marriage or union. This catches people constantly, and the result is an intestacy in exactly the family that can least afford one.

If everything is in a trust, can the children still claim?

‍Not against trust assets, because they are not part of your estate. That is the point of the structure. But section 182 of the Family Proceedings Act may allow a court to vary a trust settled during a marriage that is later dissolved.

Can my partner have a home for life without owning it?

‍ Yes, and in a blended family it is often the answer. A life interest in a home held by a trust lets your partner live there for the rest of their life, usually on the basis that they meet the outgoings, while the capital stays in the trust for the children. It gives your partner security without giving them the power to redirect the asset.

Who gets my photos if they are all on my phone?

‍Whoever can unlock the phone, in practice. Record on your list where the device passcode is kept and which cloud account the photographs sync to. Apple and Google both now let you nominate someone, and your executor cannot set that up for you afterwards.

Where to get information and support

‍ ‍•    Property (Relationships) Act 1976 — relationship property, section 21 agreements, and the survivor’s election.

•    Family Protection Act 1955 — who may claim against an estate.

•    Trusts Act 2019 — trustee duties and beneficiary information.

One change to watch

‍In November 2021 the Law Commission recommended a comprehensive rewrite of New Zealand’s succession law in Review of succession law (NZLC R145) — replacing the Family Protection Act, the Testamentary Promises Act and the death provisions of the Property (Relationships) Act with a single Inheritance (Claims Against Estates) Act, and narrowing the class of adult-child claims. The Government accepted in principle in June 2022 that reform is needed, but no bill has been introduced. If one ever is, blended-family planning is the area it would change most.

If your family is blended, the will is the last document you should be thinking about — not the first. Ross Holmes Lawyers prepares contracting-out agreements and trust-based estate plans as a single, tailored plan, with a list of digital assets included as standard. Get a fixed-fee quote. ‍

About the author

‍Ross Holmes is the principal of Ross Holmes Virtual Lawyers Limited and an author of the LexisNexis Law of Trusts (NZ). Ross Holmes Lawyers is a virtual law firm based in Auckland, acting for clients throughout New Zealand across property and conveyancing, estate planning (trusts and wills), personal law, business law, seniors law and estates. More at rossholmeslawyers.com or get in touch.

This article is general information only and is not legal or financial advice. Outcomes under the Family Protection Act and the Property (Relationships) Act depend heavily on their own facts, and a trust is effective only where it is genuinely established and properly administered. Your situation is unique; please obtain specific advice before making or changing a will, a relationship property agreement, or a trust. ‍