A picture of the modern family can sometimes be far removed from the image of the nuclear family from yesteryears - mom, dad, 2.2 kids, a dog, and a white picket fence. Today, it is gladly accepted that families come in many configurations. They are all beautiful, yet in estate planning, some present more challenges than others.
Consider the blended family, bringing together children from previous marriages, and creating a joy so unique, it has its own postal code. For the testators - that is, mom and dad who have brought their children together, estate planning tends to be the time to step back and consider asset protections for biological children.
A core principle of Ontario's Family Law Act is that marriage is an equal economic partnership. As a result, upon the death of a spouse, the surviving spouse has certain rights, among them the right to seek what essentially amounts to 50% of the assets accumulated over the course of the marriage, regardless of what the Will of the dead spouse has stipulated. For testators in blended families, this can cause a fair amount of consternation.
Let’s consider the made-up situation of the Imagines. Daniel and Sandra Imagine married 10 years ago, coming together along with Daniel’s two children from a prior marriage [Kevin (now 17) and Tamara (now 19)], and Sandra’s two children from a prior marriage [Cassie (now 14) and Hannah (now 12)]. They live in Toronto, so Ontario Wills and Estates Law applies. At the time of their marriage, Daniel had $350,000 in assets while Sandra had $50,000. They bought a home, with each contributing $50,000 towards the purchase. Over the course of their marriage, the couple have accumulated $800,000 in assets, with the lion’s share of that - $600,000 - coming from a business started and operated by Sandra. It has always been Sandra’s thinking that through the business, she would be in a position to leave Cassie and Hannah with exclusive inheritances that would rival what Daniel can bequeath to Kevin and Tamara. Is she mistaken in her thinking?
The short answer is “yes”, unless she takes estate planning steps beyond simply getting her Will drafted and executed. Should she predecease Daniel, she could leave the $600,000 she has accumulated to Cassie and Hannah through her Will, but Daniel can simply - and legally - ignore that Will and take half of that amount since it was accumulated over the course of their marriage. Considering the reverse, should Daniel predecease her, she wouldn’t be able to take half of his $300,000 in assets since it was accumulated by him prior to their marriage.
With a combined total of $1,200,000 in assets, David and Sandra are in a position to leave $300,000 to each child, regardless of biological parentage. However, if they intend to take a different approach to their bequests for whatever reason, the law - in its “untamed” form - can quickly begin to get in the way.
The estate planning concerns of blended families tend to be a little complex, and the emotional weight behind decisions tend to be … well … weightier. In the midst of it all are the children, and a large part of the challenge is getting it right for them. So, what to do?
1. Talk about it.
There is simply no substitute for good, honest, open conversation. Talk to a good estate planning lawyer to get the facts, the law, and the options straight, then take the time to hash out the hopes, the fears, the details, and the possibilities. Do all of that, then return to the estate planning lawyer with the makings of an approach for legal implementation.
2. Don’t be afraid of marriage contracts.
One of the best ways to ensure that your assets are distributed as you would like involve “taming” the law by using an agreement. While marriage contracts tend to be seen as indicative of a lack of faith in a spouse or a marriage, they often are simply indicative of a settled intention to put the interests of the children above all other considerations. It would be possible, for example, to agree that a surviving spouse will not exercise his or her right to claim 50% of the assets accumulated over the course of a marriage, thus saving the assets for the children.
3. Don’t be intimidated by trusts.
We’ve all heard the phrase - “trust fund baby”. It conjures up the image of the children of ultra-rich parents, born with a silver spoon right in their mouths. In truth, trusts can be useful to everyone, and can - for example - be funded via insurance proceeds, or gains from the sale of a real estate holding. Want to ensure your loved ones actually get what you want them to have regardless of complex domestic circumstances and quirky legal stipulations? A trust should be right up there with your Will, and your trustee can be a financial institution rather than a person.
4. Keep your designations in the game.
What are designations? Remember that time you were setting up your RRSP and the banker asked who you’d like to give the funds to should you pass on? It had you thinking quickly, and perhaps you gave a half-certain answer, which was recorded on a piece of paper, which you signed. If you are like most people, you aren’t too sure of where that piece of paper is at the moment. Well, that paper is a designation. Most Canadians hold a substantial portion of their assets in RRSPs, TFSAs, LIRAs, insurance policies, and so on. These “registered” or contractual assets don’t have to be bequeathed through a Will - the simple designation does the trick. If you pass on, the bank simply follows the indication in the designation, and the fund ends up with who you want. This makes those funds, along with the designations attached to them, a very important tool in estate planning - especially for keeping options open in the midst of complex domestic circumstances.