For many of us, December is a busy month filled with family dinners as we celebrate the holidays. Today, it is very common for families to be blended, which can add complexity to the dynamics of a family and to an estate plan. If you are in a second (or third, etc.) marriage or common-law relationship, and have children from your previous marriage(s) or relationship(s), your estate plan should reflect this.
In the blended family context, problems may arise if a married or common-law spouse leaves their entire estate to their surviving spouse outright, as the surviving spouse may not provide for their deceased spouse’s children on their death. Even if a spouse leaves their surviving spouse their entire estate with the understanding that their spouse’s Will benefits their children from a previous marriage or relationship, the surviving spouse could alter his or her Will after their spouse’s death to disinherit their spouse’s children.
To avoid this scenario, you may consider drafting mutual Wills with your spouse, which provide that all of your assets go to the surviving spouse at the death of the first spouse and then on to the children of both spouses when the second spouse dies. To prevent your spouse from changing their Will after your death, a contract binding you, your spouse and your estates to the provisions of the Wills can be signed. However, this approach is inflexible and does not have a solid legal foundation, given that by their very nature, Wills are revocable.
If you would like to leave something in your Will for your children from your previous marriage(s) or relationship(s), while also providing for your current spouse or common-law partner, you may want to consider a testamentary spousal or common-law partner trust. Such a trust would allow you to provide for your surviving spouse during their lifetime using the trust’s income and capital (if the trust so permits) and to direct that the remaining assets be transferred to your children upon your spouse’s death. Just as you would when considering whom to appoint as your estate trustee, you should consider the dynamics of the family when appointing the trustee(s) of the spousal or common-law partner trust, recognizing that family dynamics can always change however (relatively) stable they may seem.
Life insurance, non-registered investments and/or RRSPs can also be estate-planning tools that allow you to leave money to your spouse and children from previous marriage(s) and relationship(s) outside of your estate on your death. As you may know, leaving your RRSP proceeds to your spouse allows him or her to roll the proceeds into their RRSP on a tax-deferred basis. What you may not know is that in the event your child(ren) receive(s) your RRSP proceeds, the tax owing for such disposition will be paid using proceeds from inside your estate, leaving less for the beneficiaries of such proceeds. This is an important consideration when deciding who will benefit from assets inside and outside of your estate.
These are only a few of the estate-planning tools that can be used, and considerations that should be made, in the blended family context. It is best to speak to your estate law lawyer to ensure that your estate plan reflects your unique circumstances. The Wills, Estates, Trusts and Charities Law group at Harrison Pensa is here to help you.