A blended family forms when two individuals come together (married or common-in-law) bringing a child/children from previous relationships. They may then have a child/children together. The dynamics of this family arrangement can be complicated, resulting in both rewards and challenges. Financial and/or emotional issues often arise when one of the partners passes, revealing a mix of expectations from the remaining partner, children, and the ex-spouse(s). To reduce conflict, mistrust, and/or discord, it’s important to have open discussions and to develop a detailed and comprehensive estate plan, particularly if ownership of a business is involved. Preparation and communication are key to easing family dynamics. So, what does estate planning for blended families in Canada look like?
Estate planning tips for blended families:
The following are some estate planning tips to promote harmony in a blended family.
- Keep estate documents updated: Be aware that separation/divorce does not affect pre-existing beneficiary designations. Ensure all documents are updated to reflect the blended status of your family (RRSPs, pension, insurance, will, etc.).
- Establish a mutual wills agreement: This contract between partners prohibits both from changing their will without the consent of the other. Mutual wills restrict the future testamentary freedom of the surviving spouse.
- Appoint a trustworthy, reliable executor, someone acceptable to all family members.
- Consider a prenup: Creating a prenup presents the opportunity to begin communication and negotiation of difficult financial issues, providing protection and certainty for all involved/affected. Ensure the process is collaborative and based on mediation principles.
- Consider a trust: A trust (a fiduciary relationship that gives the trustee the right to hold title to property/assets for the benefit of a third party/parties) assists in the distribution of assets, solidifying a desired outcome. Tailor the trust to your preferences.
- Communicate: Open, meaningful, ongoing dialogue with your partner and beneficiaries provides a means for making adjustments as circumstances change.
- Establish a power of attorney: If a partner is alive but unable to make decisions (personal care, property, business), a power of attorney may ensure that the new spouse/common-in-law partner is in charge of decision-making, reducing conflict with the ex-spouse and/or children.
- Seek advice: Obtain advice/assistance regarding the unique tax and law challenges of your blended family situation. Your chartered professional accountant can help guide you through the twists, turns, and pitfalls of estate planning (capital gains tax, estate-related taxes, and other expenses), particularly when ownership of a business is involved.
A blended family often results in complicated estate planning challenges, particularly when a business is involved. Open and honest communication with all involved helps ensure harmonious relations. Keep beneficiary designations and documents current. Obtain advice to ensure that your estate plan meets your needs and desires. Consider tax and family law obligations. Contact your chartered professional accountant for assistance.
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