When you are planning your estate, it is essential to have open communication with your spouse. This will foster understanding, manage expectations, and reduce disputes over inheritances after your death.
In a conventional relationship, a Will commonly leaves all assets to the surviving spouse. However, that may be different with a blended family.
Distribution of Assets
When a person marries, they often bring children from their prior relationships. While it is expected, this creates issues that require estate planning. Without a plan, intestacy will dispose of your assets, typically one-half to the spouse and half to your children. You may want a different result for your family.
Unfortunately, a simple will is usually not enough for blended families. Under most will-based plans, your children from previous relationships get disinherited. This is because a Will is an expectancy, meaning your surviving spouse can change it anytime and cut out your children.
It would be best to have an advanced estate plan tailored for your family to avoid this. An attorney can help you set up trusts, spousal trusts, special needs trusts, and more. This can ensure your wishes are met while avoiding family disputes in the future.
In addition to a Will, you should also update individual documents, including your RRSPs, insurance policies, and workplace pension. This will ensure your new family gets the inheritance you wish them to receive and that taxes are deferred. You should also have a healthcare power of attorney, which identifies someone to make medical decisions on your behalf if you cannot do so yourself, and a durable power of attorney, which outlines how you want your financial affairs handled when you become incapacitated.
Name of Executor
The typical wills for blended families involve a trust to benefit spouses and children. However, to have the trust enforced, it must go through probate. During the probate process, your family’s business becomes public. Also, your spouse and children will be allowed to contest the Will. This can cause significant financial and psychological stress.
In almost all will-based plans, the biological children of the first marriage end up disinherited. This is because a surviving spouse can change the Will at any time, and unless the Wills are contractually locked in (which is very rare), the children of the first marriage will lose their right to inherit from the estate.
To avoid this problem, a trust can be set up that allows you to name someone to manage your assets and give them to your children on your chosen terms. This can be done by setting up a trust for a life interest or a trust for distribution on death with trustees and beneficiaries named. This is a more comprehensive solution than joint ownership or beneficiary designations because it does not require affirmative steps vis-à-vis the Court.
In a traditional family, leaving assets and property in trust for the surviving spouse is common. They may access the income and principal of the trust until their death, after which the trust assets pass to the children of both spouses.
In the case of a blended family, this distribution pattern might be challenging. The surviving spouse might want more than just the income of the trust, or they might wish to continue to use the assets in their lifetime and pass them down to their children at some point later.
Other options include making the surviving spouse beneficiaries of life insurance and retirement accounts, which do not go through probate. They could also make the children of both spouses co-trustees of a trust, allowing them to distribute income and principal for health, education, maintenance, and support.
In any case, estate planning is necessary for everyone. Without a plan, the law will determine how assets are passed, and this result is not likely to be in the best interest of the survivors. In addition, without a Will, family members might argue in Court over the estate, leading to unnecessary stress and expense. An experienced lawyer can help you decide what kind of estate plan is best for your unique situation. They can prepare a Will that meets your goals, guide trusts, and assist with administrating your estate after your death.
While a second marriage can be a blessing, the family members of both spouses must be considered in estate planning. If the proper steps are not taken, children from a prior relationship may be disinherited, or their inheritance may be reduced. A knowledgeable attorney can help address these issues and protect the rights of spouses and children.
Generally, traditional estate plans provide that a survivor inherits all assets, and then the deceased spouse’s children receive any remaining estate. However, this type of plan needs to be revised with blended families.
In addition, a common mistake that can disinherit children from a previous marriage is joint ownership with the right of survivorship on the property such as homes or bank accounts. If a person with an existing Will dies in a province where marriage automatically revokes a Will, their estate could end up going to their new spouse and excluding the deceased’s children. A well-drafted prenuptial agreement can help prevent this from happening.