Blended Families and Estate Planning

Families in which one or both spouses have children from a previous relationship, known as blended families, present some particularly tricky challenges when it comes to estate planning. They often require a balance between providing for one’s current spouse and making sure that one’s children from a previous relationship will also be provided for.

If one is living in a blended family, before undertaking one’s estate planning, one should carefully consider whether one would be best served by obtaining independent legal advice – using a different lawyer than one’s spouse – rather than proceeding with jointly retaining a single lawyer to assist. This is because the wishes and interests of spouses living in a blended family may not align.

In particular, if spouses in a blended family are in a relatively new relationship, if either spouse feels that their interests may not be aligned in any way, or if there is any power or financial imbalance in their relationship, we generally suggest that it may be in their best interests to each seek independent legal advice regarding their estate and incapacity planning. If individuals in such a situation decide to proceed with joint representation and forgo independent legal advice, they should be aware that a lack of independent legal advice may expose their estate and incapacity planning measures to challenge, may weaken those measures in the face of a challenge, may lead to significant expense for their estate, their spouse, children, and other beneficiaries in resolving any challenges, and may ultimately result in their assets not ending up with the individuals or causes they had wished.

It is fairly common for a spouse in a blended family to leave (or want to leave) everything to their surviving spouse. Frequently this is accomplished (or proposed to be accomplished) through the spouses jointly owning assets like houses, cars, and bank accounts, and designating each other as the beneficiary of their respective RRSPs, RRIFs, TFSAs, pensions, and life insurance policies. From one perspective, this is an efficient estate plan. Upon the death of the first to pass (the “FTP”), all of the assets pass to the surviving spouse (the “Survivor”). Probate is usually not needed, and the children of the FTP will generally have a hard time going after the assets that end up in the hands of the Survivor alone, barring fraud or undue influence on the part of the Survivor. Unfortunately, despite this apparent simplicity and efficiency, this is generally not a good estate plan for folks living in a blended family. In most cases, it is actually the worst available option because it provides absolutely no assurance that the children of the FTP will ever be provided for.

Using this kind of approach to estate planning in a blended family poses a significant risk that the children of the FTP will be entirely disinherited. Even if, at the time of the FTP’s passing, the will of the Survivor makes some provision for the children of the FTP, this does not provide any guarantee that they will receive any inheritance from the Survivor and provides no recourse for them should they end up not receiving anything from the Survivor at the end of the day.

Once the Survivor has received everything from the FTP, a number of scenarios that result in the children of the FTP receiving nothing may play out. A non-exhaustive list of frequently encountered scenarios includes:

• the Survivor and the children of the FTP (or the spouses of the children of the FTP) have a falling out after the death of the FTP, and the Survivor decides to change his or her will to disinherit the children of the FTP. This tragic scenario is a very common occurrence despite frequently heard optimistic assurances that “it will never happen” and “they won’t do that”;
• the Survivor leaves his or her will intact, which ostensibly provides for the children of the FTP but, the Survivor:
  • spends all the assets before passing;
  • gives the assets away before passing (e.g. to the Survivor’s children rather than those of the FTP);
  • is sued and compelled by the courts to use the assets to satisfy the resulting debt;
  • begins a relationship with a new spouse, and amends their estate plan to pass all assets to that new spouse (e.g. through joint ownership of assets and beneficiary designation);
  • begins a relationship with a new spouse, and later loses a significant portion of the assets due to a family law claim by that spouse after the relationship breaks down;
  • becomes a spendthrift and / or is defrauded due to mental decline.

Additionally, even if, at the time of the passing of the FTP, the will of the Survivor makes some provision for the children of the FTP, and no events like those listed above have occurred, there is an additional risk. The Wills Estates and Succession Act grants the children of the Survivor standing to ask the court to alter the provisions of the Survivor’s will in their favour. Consequently, if after the Survivor’s death the children of the Survivor successfully attempt to have the court vary the Survivor’s will in their favour, provisions for the children of the FTP in the will of the Survivor may be reduced or removed by the courts.

Because these kinds of considerations must be attended to, estate planning for blended families is never “simple”. Fortunately, there are a number of tools and strategies that may be used, for example:

• beneficiary designation of assets
  (e.g. RRSPs, TFSAs, pensions, life insurance);
• joint ownership of assets as joint tenants
  (a special form of co-ownership we have discussed in a previous article found here);
• mutual wills
  (a contractual agreement between spouses to prevent the surviving spouse from changing the surviving spouse’s will after the death of the first-to-pass spouse);
• trusts created while one is alive (known as inter-vivos trusts) or trusts that come into existence at one’s death (known as testamentary trusts); these can include:
  • alter ego & joint partner trusts
  • spousal trusts
  • trusts of life insurance proceeds; and
• “prenups”, marriage agreements, and cohabitation agreements
  (family law documents that can play an important role in estate planning too).

In the next few posts, we will be digging a bit deeper into some of these tools and strategies and discussing some of the ways they may be used in the context of blended families.

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Family photo by Jessica Rockowitz on Unsplash