When someone mentions the term “blended families,” an image of The Brady Bunch may flash through the average person’s head. However, the reality is never that straightforward, and neither is building an estate plan for a blended family.
With about six in 1,000 marriages ending in divorce every year, developing an estate plan to include kids from previous relationships is something many couples have had to think about. Though divorce rates have declined in Canada since the early 1990s, the average age of divorce has risen to 46, up from 38.
With older divorcees comes the likelihood of more assets to divvy up and older children. The number of stepfamilies where the youngest child is over 25 years old topped one million in 2021, up from 770,000 in 2011 when Statistics Canada began recording this demographic data. What’s more, it’s not unusual for families coming together to be on their third or even fourth marriage. For high-net-worth (HNW) families, this can bring about all sorts of challenges when it comes to navigating the dynamics of estate planning.
“It’s not just the financial or legal aspects of estate planning when it comes to blended families,” says Lydia Potocnik, National Head of Estate Planning and Philanthropic Advisory Services at BMO Private Wealth. “The emotional aspects have to be factored in because you’re dealing with different sets of family members as well.”
With some forethought, though, you and your family can overcome these five estate planning challenges.
Diverse family structure
Unlike the traditional nuclear family, blended families can involve an intricate web of stepchildren, biological children and multiple sets of grandparents. Adult children from a previous marriage may have to contend with new, much younger half-siblings from the new union, or there may be a shift from a family with heterosexual parents to a same-gender family. In fact, according to Statistics Canada, 39% of same-gender couples with children are stepfamilies, compared to 12% of heterosexual couples.
“There are so many different types of relationships today, and because of that, we have to consider the blended family outside of your traditional mother-father, male-female relationships, as well,” says Potocnik.
Ensuring fair estate distribution
Any union involving HNW families can trigger difficult questions about how that partnership impacts estate plans, or possibly even a business, if someone in the family owns one. Although talking through how to balance the financial requirements and expectations of a current spouse with those children from previous relationships may not be the most romantic conversation you’ll enjoy as a new couple, Potocnik says it’s one that shouldn’t be put off.
A new couple with an uneven balance of assets – with one spouse bringing significantly more wealth to the marriage – can be the most important factor to address when it comes to estate planning. This is especially important when a family business is involved. Using a prenuptial agreement or marriage contract is a common tactic many HNW families use to protect assets brought into a marriage and define financial boundaries from the outset.
Establishing a spousal trust is another strategy that can be used in a marriage with an inequality of wealth, which can help retain some say over what happens to those assets in the future. A spousal trust can protect the surviving partner’s needs during their lifetime while ensuring remaining assets go to predetermined beneficiaries, such as children from the first marriage or charities, explains Potocnik. Any assets that remain in the trust upon the surviving spouse’s death are passed along to the beneficiaries of the individual who originally established the trust.
Life insurance is another tool that’s frequently used to provide greater equality when estate planning for blended families. For instance, insurance could be used to provide for adult children from a previous marriage who might not be eligible to receive their biological parent’s inheritance until after the step-parent passes. In this case, life insurance can be structured so that its proceeds go directly to those adult children upon the passing of their mother or father who remarried. Anything else in the estate could then go to the surviving spouse.
Risk of accidental inheritance
An especially important reason to review your estate plan when you remarry is to avoid an accidental inheritance to a former spouse, which can happen when wills and other financial assets aren’t updated. Many people assume a new marriage cancels an existing will, but this is only the case in certain provinces. For instance, Ontario just eliminated this automatic revocation in January 2022. Now, in B.C., Alberta, Saskatchewan, Quebec and Ontario, a marriage does not automatically revoke a will.
“When you do remarry, review not only your will but also your beneficiary designations to make sure you are actually leaving those assets to the people you want them to go to at the end of the day,” Potocnik says. I have seen situations where a former spouse receives the proceeds of an insurance policy because the beneficiary designation was never updated. These situations can be challenging and could open the door to the estate being litigated.
To avoid leaving behind an unintended inheritance, be sure to update your beneficiary designations in your will as well as financial products like Tax-Free Savings Accounts, life insurance policies and Registered Retirement Savings Plans to reflect the new family structure.
Sentimental assets
You might not think a painting or vintage car could cause a rift in the family after you pass away, but given their sentimental value, family heirlooms are just as important to plan for as financial assets. The daughter who expects to inherit her grandmother’s antique jewelry only to see it go to her stepmother when her father passes would be heartbroken to lose a piece of her family history.
“You would not believe the number of times I have seen families and children from different relationships become very upset with each other when sentimental assets end up going to different members of the family,” says Potocnik.
Spend some time considering which heirlooms or nostalgic items you own and who you want to pass them on to, then update your will to prevent future strife between loved ones.
Complex emotional dynamics
Effective estate planning must take into account more than just the financial aspects of what you’re leaving behind. It should also consider the emotional impact of how assets are distributed and the impact those choices have on the family unit. Communicating your general estate plans is a vital step, as is setting expectations with everyone, so speak with your children and stepchildren in a way that best suits your family’s dynamics. For some people, that might mean a structured meeting with a neutral facilitator to guide the conversation, while others might prefer one-on-one conversations with each child.
“You have to look at your own family and decide: what’s the best mode to have this conversation?” Potocnik explains. “When is the best time to have this conversation, and how much do I want to share? Some clients will share every little detail, and other clients don’t feel it’s appropriate.”
A professional executor can administer an estate or trust with objectivity and take extra care to preserve family harmony when beneficiaries are from two different families.
Although a blended family comes with its own unique challenges – both emotional and financial – with careful thought and input from your BMO wealth professional, you can navigate the complexities of planning for your family’s future once you’re gone.
“Look at this as a process and not a one-time transaction,” Potocnik adds. “If you want to maintain family harmony at the end of the day, consider this as an opportunity to take a long-term approach to your estate planning and review it every five years to make sure it still reflects your wishes and intentions that you have when it comes to those two sets of children.”
