Balancing family life is one thing. Balancing blended family life is quite another, from juggling sibling and step-parent relationships to schedules to living space. Blended families are by their very nature complex, and things become even more so when focusing on estate planning. Are the realities insurmountable? No, but recognizing your blended family’s unique circumstances and working them into an estate plan can help ease stress and potential pitfalls.
From our experience assisting clients, we know every situation brings its distinct slate of factors and decisions. However, there are some common themes that can help keep matters as clearly combined or as separate as you wish. Think “yours, mine and ours.”
Living With A Previous Commitment
Legally binding terms from previous marriages are typically reflected in formalized documents or court orders. Obligations to pay child and/or spousal support can continue for specified times, perhaps even for the lifetime of a previous mate. Such terms can affect your freedom of choice in terms of gifting accumulated wealth. Failure to honour such obligations can expose your estate to litigation and unnecessary expense. Another common requirement arising from earlier marriages is the commitment to keep insurance in place, which carries similar litigious consequences if the policy lapses, or the beneficiary designation changes. So, though you may think of specific assets as “mine,” your liberty to pass them to beneficiaries of choice may be curtailed.
A Current Agreement
Although people joke about “once bitten, twice shy,” marriage agreements (also known as prenuptial or postnuptial agreements) are a good idea where one or both persons coming into a relationship have accumulated wealth, and where the distribution of that wealth may become an issue in the future. Likewise, a cohabitation agreement for couples living in a common-law relationship is a worthwhile tool.
Marriage/cohabitation agreements can help clearly define what is yours, mine and ours and should complement what’s set out in your will. Often, such agreements allow you room to be more generous under a will without the obligation. Keep in mind, you may be constrained by the agreement created at the relationship’s outset and must take this into account when creating an estate plan.
Consider, for instance, a couple marrying later in life after their first spouses have died. They may be happy to support each other during their lifetimes, but ultimately want the wealth created with their first spouse to flow to the children of that marriage. Making these intentions clear in both a marriage/cohabitation agreement and a will can help avoid any dispute down the road when the first of the newlyweds passes away. Ideally, both parties receive independent legal advice and have lawyers draft the marriage/cohabitation agreement, as such contracts can sometimes override rights otherwise set out by legislation. If you already have a marriage/ cohabitation agreement, it’s wise to review it with your estate and trust lawyer before drafting your will to ensure the two documents are consistent.
In today’s world, with people moving for work or retiring to other countries, be mindful that the agreement originally in place will not necessarily apply in your new home country. We recommend consulting with a family lawyer working in that jurisdiction. The same holds true if you’re an international couple moving to Canada with a prenuptial agreement drafted in another location. It may or may not stand up, and it’s best to consult with a family lawyer specializing in this area.
How Many Dependants Do You Really Have?
Careful: You may be taking an overly narrow view of “I’ll look after mine, you look after yours.” If you assume the role of a parent to your new spouse/partner’s children, they may have a legitimate claim against your estate for ongoing support while they are minors or young adults still in school. Not providing for them may derail your estate plan. Depending on the family relationship (typically siblings and parents), the nature of your help, and the province where you live, you may have other unexpected dependants to look after when distributing your assets. An estate lawyer can help you understand your obligations and, for those so inclined, how to avoid them, especially in new relationships.
Keeping Property In Its Rightful Place
Property held jointly by spouses with right-of-survivorship, passes automatically to the surviving spouse/partner upon the first death. Often, title to real estate, like the family home, is structured this way. This can work well if you intend to have property fall within the “ours” portion of your assets. But remember, once you die it becomes the other owner’s property to be disposed of as they wish, either during their lifetime or in their will. Depending on who dies first, this may result in a windfall gain to your spouse’s family. Alternatively, if your spouse remarries, the property could be left to the new spouse rather than your children from this marriage, or an earlier family whom you wanted to benefit. Unless the two of you take irrevocable steps to protect the ultimate disposition of these assets, there are no guarantees the property will end up with the owner(s) you intended. Consider the long-term ramifications of your wishes and decisions before agreeing to own property jointly with right-of-survivorship.
Be Aware Of Unintended Consequences
No one can predict how life will evolve for parents and their children. But we suggest blended families be even more mindful of the decisions they make and the possible ripple effects. Consider Luke and Betsy, both in their second marriage, and each with a son from the prior marriage.[1] The couple also has twin girls from the current marriage. Luke and Betsy agree that no matter who dies first, everything goes to the surviving spouse. When that person passes, each of the four children are to receive 25% of the estate. Betsy outlives Luke. As time passes after Luke’s death, his son grows increasingly resentful and harsh towards his stepmother. Betsy believes Luke would never have condoned such behaviour. After much consideration, she removes Luke’s son from her will and redistributes his share equally among the remaining three beneficiaries.
Can this be done? Would Luke have agreed to this structure had he known Betsy might change her mind after he died? If Luke and Betsy had created mutual wills, whereby the originally agreed-upon distribution was irrevocable, then Betsy would have been unable to amend her will. On the other hand, would Luke have worried that he was curtailing Betsy’s ability to change with life’s circumstances? Having a clear picture of the estate structure you’re putting in place can help ensure, to a reasonable degree, that your wishes are implemented after you’re gone.
Choosing Your Executor Wisely
This is perhaps the most important consideration in estate planning and yet it’s often given little thought. Conflicts of interest often arise between first and second families and it’s important to select an impartial executor and/or trustee. Where there are minor children and/or lifetime trusts for someone, with the assets ultimately going to other people, the executor and/or trustee must have the capability to perform their duties for the long-term duration of their responsibility. You’ll also want a person(s) who has the requisite knowledge of trust and estate law to ensure the estate is properly administered. Investment expertise for assets held in trust and proper recordkeeping are also critical factors. Ask yourself whether a friend or family member has the time, expertise and energy for such a long-term challenge. You may want to consider a corporate executor and/or trustee, or a joint situation where a family member shares those duties with a corporate executor/trustee.
Potentially complex family relationships can be made simpler by ensuring you clearly spell out how and to whom you want your wealth transferred. Take time to talk to your advisors from a wealth management perspective and seek independent legal advice from lawyers practising in the areas of family, trust and estate law. We believe you will find it time well spent.
NOTES:
[1] Luke’s and Betsy’s relationship is a hypothetical situation, established to help illustrate issues facing blended families.