Second marriages and blended families are becoming more and more common in Canada. If you are in a second marriage or part of a blended family, you will likely want to balance competing interests in your estate plan such as the interests of children from a prior relationship or the interests of a spouse who wants to preserve assets built up before your relationship.
People often use the following estate planning tools as a way to balance the interests at play in a blended family:
- Having life insurance proceeds go to children and your estate assets go to your spouse
- Dividing your estate into two equal parts with one part going to your spouse and one part going to your children
- Using Mirror Wills
- Establishing a spousal trust
If you choose to have life insurance proceeds go to children and estate assets go to your spouse, keep in mind that life insurance proceeds go directly to a beneficiary and do not pass through your estate. Your estate will have to pay debts and expenses after your death. You should consider how much value will be left in your estate after all debts and expenses are paid to determine whether you have adequately provided for your spouse.
Dividing your estate between your spouse and your children may appear straight forward, but remember that any jointly held property will go directly to the joint owner and will not pass through your estate. For example, you and your spouse jointly own your home and all of your bank accounts. Your spouse will receive these assets directly and your children will not receive half of their value. You may choose to divide your estate differently depending upon how your assets are held. Taking the above example, you may choose to leave 1/4 of your estate to your spouse and 3/4s to your children.
Some couples choose to leave everything to a spouse on the condition that the spouse will provide for children from a prior relationship in the spouse’s Will. Usually, each spouse has a mirror version of each other’s Will where everything goes to the surviving spouse and the surviving spouse then leaves everything to the children. If you are thinking of using this strategy, it is important to recognize that your spouse may change his or her Will after your death and disinherit your children. You should carefully consider the dynamics within your blended family and the probability of conflict arising in the future. Relationships may go sour and all your careful planning to provide for your children be ruined.
Finally, you may choose to create a spousal trust where you give your spouse the benefit of assets for his or her lifetime with those assets passing to your children on your spouse’s death. This estate planning tool has the advantage of avoiding the possible disinheritance of your children, but may have significant tax consequences for your spouse and you should consult with a legal expert to determine whether it is a tool you want to use.
The above post is a general summary of issues encountered in second marriages and blended families. It is important to consult with a legal expert to ensure you have the best estate plan to suit your specific situation.