Estate Planning Tips for Canadian Blended Families

Blended families face unique estate planning challenges. Here’s a rundown of some challenges and steps to consider to avert legal disputes, safeguard assets from creditors, and address emotional issues. 

Challenges and Complexities of Estate Distribution in Blended Families

There are unique challenges to will and estate planning for blended families considering that there are two, three, or more individual family units to consider, says Terry Zavitz, financial advisor and president at Zavitz Insurance & Wealth in London, Ontario.

She lists the following as key issues:

• The interests of the surviving spouse and family versus that of the previous spouse/family.
• Legal obligations as to family law and dependant’s support.
• Emotional dynamics that can complicate the decision-making process and lead to family disputes.
• The complexity of the estate and family laws which are provincially mandated and vary based on the province of residence of the deceased and the province in which real estate and other assets are domiciled.
   

Proper financial planning can mitigate many of these issues. The process begins with compilingan inventory of assets and liabilities and listing ownership rights and beneficiary designations.

Further, taking account of “legal obligations such as shareholder, divorce, separation agreements, is key to ensuring they all pass to the intended recipient, that the will correlates with all of them to avoid legal disputes and to ensure the intended estate distribution occurs,” says Zavitz.

Engaging experienced estate professionals can help ensure thorough planning. Appointing an impartial estate trustee who can navigate challenging family dynamics can prove to be beneficial. Someone who “understands the complexity of estate, family, and tax law, and can educate the estate trustee in advance as to the overall estate distribution and concerning family dynamics,” she adds.

Legal Considerations Unique to Blended Families in Canada

When creating their estate plans, individuals should be mindful of distinct legal aspects that pertain uniquely to blended families in Canada.

While each province has its own set of estate laws that must be adhered to, there are some consistencies throughout. These include “the spouse is entitled to their portion as outlined under family law legislation, dependents must be provided for, and previous spousal and pre-nuptial agreements must be respected,” Zavitz asserts.

Consult experienced estate planning specialists, including a financial advisor, lawyer, and financial planner. Hiring those with expertise in complicated financial planning issues is “critical to help navigate the complexities and ensure the wishes are legally sound in the province of residence as well as the province in which there may be real estate or other hard assets, which are governed under the estate laws of where the assets are situated,” Zavitz points out.

Strategies to Manage Potential Conflicts

It’s imperative to anticipate and manage possible conflicts arising between stepchildren and biological children regarding inheritance and the division of assets. 

The approach must be one of open communication between all family members to understand their expectations and concerns, then address these items as decisions are made in accordance with the will and plan, says Zavitz.

“If there are young family members, the plan should be communicated with the estate trustee in advance, as well as the named guardians,” she says, adding that open communication can help to prevent unsavoury surprises and possible estate litigation at the time of death.

This proactive approach becomes even more crucial when you consider the prospect of three or more competing interests in the estate, which significantly increases the likelihood of conflict and subsequent estate litigation – a process that's not only financially “costly but also time-consuming and has the potential to break up what was once a well-functioning and happy unit.”

Financial Tools to Protect Blended Family Members

Using trusts in estate planning has become an effective strategy. “Spousal trusts can be used to provide for the surviving spouse while preserving assets for the children from previous relationships, which helps to avoid potential future conflicts over these assets,” says Zavitz.

Spousal trusts are a way to take care of your new spouse and making sure your assets flow to your own kids instead of facing risks from others' claims, your spouse's decisions, or improper planning.

Life insurance is another critical estate planning tool in a blended family scenario. “Life insurance can assist in equalizing the estate while ensuring that high-value items such as real estate and business shares go to the intended beneficiaries, that dependents are financially provided for, and can be used to pay final estate taxes,” notes Zavitz.

Strategically determining which assets to hold jointly and which to retain as individual ownership can also preempt future complications. It is crucial to note that “jointly held assets pass to the surviving owner, which may or may not align with the overall estate distribution goals,” cautions Zavitz. “Compiling a Letter of Wishes, while not legally binding, can assist the estate trustee as well as the family members in understanding your wishes and the reasoning behind certain decisions.”

Keep Things Up to Date

Review and update the will and overall estate plan regularly, at least every five years, or more often if there are changes in the families, to ensure it remains relevant and effective, says Zavitz.

She also recommends creating and maintaining an Estate Overview document that summarizes the estate, which could be of great assistance to the estate trustee. Be sure to include the following items in the document:

• Assets and liabilities
• Bank account numbers and bank locations
• Names of lawyers, accountants, financial planners, and other professionals that have knowledge of the estate
• Important user ID and passwords
• Location of important documents
• Names of doctors and location of medical files
  
  

These measures can ensure that all your loved ones are taken care of when the time comes.