Last year an issue of ADVISOR.CA (August 3, 2016) carried a fascinating article about the Blended Family. According to the 2011 Canadian census, stepfamilies with children represent approximately one in eight of the total.
The evidence suggests that while most blended families live contentedly and co-exist happily along with one another, there remain some issues that can lead to unanticipated difficulties if left unaddressed.
The issues, though easy to resolve, mainly occur in the areas of financial and estate planning – areas in which we at The Ritcey Team have considerable expertise. What follows is a brief overview of five issues that you should look out for:
1. Keeping estate-related documents up-to-date
Not updating a will is a common mistake. In some provinces, a marriage revokes any previous wills. So if you remarry and then pass away without drafting a new will, you may die intestate and your estate will be distributed in accordance with the provincial intestacy laws.
It’s also important for you to review any plan where a beneficiary is named, such as an RRSP, insurance, or work pension. Estate conflicts have been known to arise if a spouse neglects to remove a former partner from these plans or policies.
2. Choosing an executor
In the context of a blended family it is important to nominate someone who is reliable, punctilious and organized. The possession of solid people skills can be an important asset – so he or she can work comfortably and (if necessary) tactfully with extended family members.
A thought: it may be beneficial to choose a third party such as a trust company, lawyer, or accountant to act in this situation. We can offer you advice in this situation.
3. Giving gifts and establishing trusts
Trusts can be an effective method for distributing assets. For those of you wishing to
divide assets during your lifetime, outright gifts or inter-vivos family trusts may be the route to take.
For division after death, testamentary trusts (with possibly an independent trustee) can be an ideal option.
If your intent is to have assets fund a testamentary trust that will eventually benefit children from a previous marriage, as a spouse in a second marriage you may not want to hold certain assets jointly with right of survivorship.
4. Life insurance
Life insurance can be an important tool for many blended families. Because proceeds of a policy will be available at death, it can be an effective way to create an inheritance for beneficiaries.
Remember, life insurance proceeds are not taxable in the hands of the beneficiaries. Also, if you name your beneficiaries on your life insurance policy, the proceeds can be paid directly to them avoiding the need for probate.
Don’t forget that life insurance proceeds can be used to pay your estate’s liabilities, such as taxes, mortgages or debts. This will help to ensure that non-liquid assets, such as a business or vacation property, don’t have to be sold to pay bills.
5. The role of marriage contracts
There is a great deal to be said in defence of a marriage contract, especially in the context of a second marriage. Here’s why:
- The contract-writing process involves thorough and open communication.
- The contract is a way to assure both people in the relationship that they’re protected.
- The contract is an effective way for both spouses to outline the assets each will allocate to their respective children.
While we don’t pretend to be experts in marriage contract writing, we would be happy to introduce you to legal experts who are. We also work closely with our own specialists from Scotia Wealth Management to offer insurance solutions and estate planning services.
The blended family is a social trend that shows no sign of slowing. And these five issues are not the only ones that need to be considered. Let us know if we can help.
Dave Ritcey, The Ritcey Team, Scotia Wealth Management