In the Blender – Estate Planning for Blended Families

All families are complicated, but blended families, where one or both spouses bring with them children from a previous relationship, can be more complicated than most. When it comes to estate planning, blended families pose unique and challenging concerns. Factors such as competing support obligations, property rights under family law legislation, and family conflict or mistrust can all make estate planning in blended family situations a very tricky endeavour. In these cases, there are a few estate planning tools that individuals can turn to.

First, mutual wills may work well for some spouses. These are wills that mirror each other – typically giving everything to the spouse on the first death and then to children or others upon the second death – alongside a contract which states that neither spouse will amend their will without the other’s consent. After one spouse passes, the surviving spouse can no longer amend their will at all. Typically, spouses use mutual wills where they agree on dividing their joint estate among specific beneficiaries.

Other couples may decide that using one or more trust structures is the right approach. A spousal trust, for example is a great way for an individual to leave support for their spouse throughout their lifetime, while ultimately preserving their estate for the next generation. In a spousal trust, the deceased spouse leaves assets in trust for the surviving spouse, who has the benefit of all of the income of the trust, as well as access to the initial funds if desired. When the surviving spouse passes, the trust terms will dictate where the remaining assets are to go.

Spousal trusts do not work well in situations where both spouses jointly own all or most of their assets. In those cases, the spouses may wish to set up a joint partner trust, which is a trust into which they will transfer their joint assets during their lifetime. Again, the trust terms will dictate where the assets are to go after both spouses have passed, which provides for both spouses during their lifetimes, but controls the ultimate distribution of the joint estate.

Each of these planning strategies has advantages and disadvantages and there is no one-size-fits-all approach. Couples may also need to look to other less obvious planning tools, such as use of life insurance to fulfill competing support obligations where the estate is too small. Cohabitation and marriage contracts can also help to define and limit certain support and property rights so that such claims are not made against the estate.

Finally, it is worth exploring the use of a professional executor and trustee as it can be invaluable to have someone who is a neutral expert to administer the estate and any established trusts. The financial, legal and emotional complexity found in most blended family situations would make it unwise to place this administrative burden on a family member or friend.

Raymond James Ltd.’s trust services are offered by Solus Trust Company (“STC”). STC is an affiliate of Raymond James Ltd. and provides trust services across Canada. STC is not a Member of the Canadian Investor Protection Fund.