Expert says blended families and common law spouses just two examples that require unique, specialist advice
Downloading a DIY will kit off the internet is a recipe for disaster given the unique structures and dynamics of the modern family.
The warning comes from Lydia Potocnik, vice president, Philanthropic Services, BMO Wealth Planning, who said more specialist advice is needed from an estate planning lawyer or advisor to combat the complexities of relationships in 2019.
She told WP: “Families come in different shapes and sizes. There are a lot of blended families and common-law spouses, and I work with a lot of single households, individuals who don’t have any family. I also see a lot of one-parent families, divorced and separated couples, and same-sex couples are becoming more common.
“They are all unique family structures that require more time and care when it comes to estate planning.”
Arguably, the most common example is blended families, typically people who are on their second marriage and have children from their first. These are often contentious, Potocnik said, because the kids sometimes don’t talk or get on with each other, so the parents need to factor that in when deciding how to divide up their wealth after they pass away.
She recommends a marriage contract, especially if one spouse is bringing more assets to the marriage than the other, because they’ll want them to go to the children from the first marriage. Potocnik added that trusts are underutilised in this scenario and believes they can be an excellent estate planning tool for the modern family.
She said: “In a blended family, when one brings in more assets to the marriage, they can create a spousal trust to support that second wife or husband. It creates an income source for that second spouse and when that second spouse passes away, any assets will go to the children from the first marriage.
“It’s also a popular planning tool for children who have special needs or spendthrift children or those with addiction issues. The trust allows them to protect their inheritance.”
With blended families often come difficult dynamics, requiring a deft human touch and skilled financial knowledge on the advisor’s part. Potocnik said appointing a neutral, objective executor to administer the estate, and also someone who is going to be objective in managing the trust fund, is recommended.
She said: “You don’t want one child from another marriage making decisions for their step brother or sister. That can make things very awkward, so obviously a neutral third party like a trust company is always a good choice in those types of situations.
“The other thing I would recommend is sitting down and talking to the children about the estate plans you have in place. This is where the children over the age of 18 are going to have a fairly good understanding.
“That open disclosure is a way to improve the dynamics. But I think every family has to decide whether open estate planning is the right thing to do or if it’s going to make things worse.
“But I’m a big believer in sitting down and trying to facilitate a discussion around what the structure might look like, so everybody is under the impression that things are being done openly and transparently. If they are not going to be fairly divided up, it’s up to the family to decide whether they want to share that or not. But I’ve seen the opposite thing happen where it makes things worse.”
Here, Potocnik gives her take on three other modern-family examples:
Single, unattached parents
“They are raising kids on their own and need to prepare an estate plan that really describes how their parental role is going to be filled in the event of their death. Appointing a guardian can be done through a will and it allows the guardian to apply to the court for permanent custody of that child.”
Single, no family
“Even if you don’t have any family, you have to put in place an estate plan so the government doesn’t get your assets. Each province has its own legislation when it comes to intestacy rules. If you have somebody who doesn’t feel that estate planning is very important because they don’t have anyone to leave their money too, they should think twice because the intestacy rules will be applied when they pass away.
“What that often means is they could be leaving money to different family members they aren’t close to or don’t have a good relationship with. A lot of individuals who are single may decide they want to leave money to charity, and this is where strategic philanthropy can play a role.”
Common law couples
“I always suggest they have a co-habitation agreement in place because when it provincial statutes do not provide a lot of support for common law spouses and division of assets.
“Common law partners need to put in writing what their intentions are when it comes to leaving property to each other and even financial support. What can happen is you don’t provide enough and the [partner] can make a claim against your assets to the courts for more than you had given them."