1969 was an influential year for many reasons – Woodstock, the first man on the moon, John Lennon’s bed-in for peace – but what no one realized at the time was the most important story was the one about a lovely lady and man named Brady.
That September, The Brady Bunch, which saw two single adults, each with three children, marry and move in together, upended ideas around what it meant to be a family. With shows such as Full House, Modern Family and This is Us pushing these dynamics even further, family is now whatever you want it to be.
These depictions have had an impact: nearly 12% of two-parent families are stepfamilies, while the number of multi-generational homes has grown by 45% since 2011, according to Statistics Canada. However, there’s one thing missing in pop culture’s conversations around modern unions – how to financially plan for what are often unique family situations.
Advising the new family dynamic
Estate planning has certainly become more complex over the last several years, in part because of how varied families have become, but also thanks to more advanced reproductive technology, cohabitation, multi-family living arrangements and other household trends.
“In the 1950s, society was all about the nuclear family,” says Lydia Potocnik, Head of Estate Planning and Philanthropic Advisory Services at BMO Private Wealth. “But ideas of family have now shifted to reflect a more diverse and inclusive society where families are made up of children from previous marriages, same sex couples, common-law spouses and single-family households.”
As ideas around marriage and children have changed, so too have estate planning conversations. Many advisors and wealth professionals are now focusing on the non-technical, human side of estate planning. This means talking to your advisor about more than just money, including the details of your unique family dynamics. Transparency is critical: the more open and honest you are about your specific family structure, the more tailored the advice and recommendations you’ll receive.
Advice will vary depending on those needs, of course. For instance, you may need to establish trusts to care for a specific person or purchase life insurance to even out assets between children. Dividing assets among blended families, especially if there is a family business to pass on, can create extra complications.
Provinces take different approaches to modern families
When creating an estate plan, you’ll need to understand how the province you reside in treats modern families – and there are different rules in different locales. For instance, in most jurisdictions, married and common-law couples are treated differently in estate matters. If you pass away without a Will, most provincial legislation provides no protection to common-law partners. Unmarried partners aren’t automatically entitled to a share of the estate since the intestacy rules in most provinces only apply to married couples. It’s all the more important for common-law spouses to turn their minds toward formulating a cohabitation agreement.
In Quebec, the rules are even more unique. There, de facto spouses are not recognized by the Civil Code of Quebec, which means that if only one of the spouses owns the principal residence, “the other spouse could be left without a home if there was ever a dispute,” explains Chantal Moreau, Director, Estate Planning at BMO Private Wealth, who serves clients out of Montreal. “That can lead to some pretty difficult situations.”
One way to deal with this risk is to set up a cohabitation agreement, which can be used in a separation (alongside a Will in the case of death) to specify arrangements between common-law couples not recognized by law. “Unfortunately, not enough people sign cohabitation agreements,” says Moreau.
Whether a couple has a cohabitation agreement or a more standard marriage contract, the document should align with the Will to prevent potential disputes when a spouse dies, says Moreau.
Apart from common-law relationships, Quebec also treats trusts a little differently. With a testamentary or another trust, an independent trustee must be named to act. Therefore, the person who established the trust or a beneficiary could not act as sole trustee.
Communicating the estate plan
A well-thought-out estate plan that considers laws in different provinces can help keep the peace in a family when a loved one dies, but there are other hurdles you should clear before developing a plan.
The first? Communicating wishes to beneficiaries. Too often, parents will keep their plans private from their children, says Potocnik. While that can complicate things in traditional families who may have different ideas on how they want to distribute the estate, it’s even more complex when stepchildren are involved. “Unfortunately, I have seen families fall apart because adult children and beneficiaries don’t understand the reasoning behind the estate plan,” she says.
Families fret about these talks, but getting over the fear of the conversation is often the hardest part. Potocnik had a client who wanted to leave his business to his two adult stepchildren, who are actively involved in the company. He didn’t, however, want to leave out his three adult children from his first marriage. He considered using insurance to make sure everyone was treated equally, but a cancer diagnosis prevented him from getting a policy. Naturally, he was worried about how his family would react, but thankfully, his three children – who had built their own successful careers – were on board with their father’s plan. It was a huge relief to everyone, and he was only able to move forward because he sat down with his family and expressed his wishes as to how he wanted to divide up his wealth.
While the outcome was positive, this example underscores the importance of good communication and having those family discussions in advance. “It gives parents an opportunity to explain or rationalize the estate plan that was put into place and mitigate conflict and even potential litigation when the parents are gone,” says Potocnik.
Keeping the estate plan current
Family feuds and legal battles can also crop up when an estate plan isn’t updated, especially when family circumstances have changed. For instance, if someone gets divorced and remarried and then passes away before updating their Will to include the new spouse or stepchildren.
Some couples delay updating their estate plans for years, either because they’re busy or they can’t agree on how to divide their assets among the new blended family, says Potocnik.
Plans also need to be flexible and revisited regularly, adds Moreau. “Some people try to make these documents effective for the rest of their lives, which is a mistake,” she says. “Instead, they need to be modified every few years to reflect the changes that inevitably occur in most people’s lives.”
The new estate planning approach
The more human and holistic approach to estate planning ultimately ensures everyone you care for and about is well looked after, Potocnik says.
“I often remind clients that they’ve worked hard to accumulate and grow their wealth,” she says. “It’s therefore important to have a well-thought-out estate plan where you’re transitioning those assets to the next generation or to beneficiaries that are important to you, whether that be individual family members or charities.”
Estate planning for the modern family is usually more complicated, so take the time to do it properly. “At BMO Private Wealth, we take a unique and customized approach to every family to ensure their needs are looked after and their loved ones are protected,” she says.
