Yours, Mine, Ours: Financial Planning for Blended Families

30 Jun Yours, Mine, Ours: Financial Planning for Blended Families

According to the last census data, roughly 1 in 8 Canadian families with children live in blended families.[1] Blended families vary somewhat, but generally they include children who are the biological children of only one of the parents in the family as well as children who are the biological children of both parents.

Financial planning for blended families can be complicated, as each partner wants to ensure that both their children and their new spouse will be cared for and protected. The standard plan of “leaving everything to the partner and then dividing it among all the children equally” doesn’t really work in a blended family.

If you have children from a previous relationship and you are considering a new marriage, it’s a good idea to think carefully about the financial implications.

Update Estate Documents

In most provinces, a new marriage revokes any previous will in existence. As a result, it’s important to update your estate documents as soon as possible after your marriage is formalized. This includes rethinking considerations such as:

• Will: A will can be a complicated document in a blended family. If you leave everything to your new spouse, your children may not inherit. If you leave everything to your minor children, your spouse may not be protected – and there will be challenges related to taxes and decision making. Look into creating a trust to protect the assets, or divide assets between your spouse and your children.
• Beneficiaries: Although a will may automatically become null and void after a marriage, a designated beneficiary is forever. Review any plans with designated beneficiaries – including insurance policies, pension plans and other registered accounts – and update them accordingly. Make sure you understand the tax implications of naming either your spouse or your children as beneficiary. In some cases, it may be a good idea to name the estate as the beneficiary.
• Executor: Many people name their spouse as their executor, but this can be complicated in a blended family situation with competing interests, depending on the relationships. It may be best to designate a personal representative who is outside your immediate family circle: a trusted friend or even a corporate executor. You can also select one executor to take charge of one portion of your estate and another executor for a different portion.

Protect Your Future

Committing to a brand new life can be complicated. Hopefully you can trust your new spouse to take care of you if something terrible happens, but it’s critical to protect yourself and your children financially in case you are unable to work for any reason. Consider the following:

• Disability planning: If you are unable to make decisions, it’s important that you have designated a power of attorney for care and for finances. This person can direct medical personnel about your wishes and pay your bills if you are unable to. If you choose to designate your new spouse as your power of attorney, make sure your wishes are clear by recording any preferences.
• Insurance planning: Review any insurance policies you already have in place, such as life insurance or long-term disability. Consider critical illness insurance or long-term care coverage as well. Review your medical and dental plans – and the plans of your spouse – to determine whether it makes sense for one of you to cover the other.

The goal is to make sure you have enough money to support yourself and your children in case you can’t work for any reason. If you had appropriate insurance policies before your marriage, those policies may no longer be adequate if you have additional people relying on you.

Communicating clearly about your financial situation and your financial expectations can go a long way toward working out any potential issues in your new blended family. In fact, make it a regular event. A weekly “family meeting” or “money date” provides an opportunity to discuss any financial concerns and share conversation about short- or long-term financial goals.

To learn more about planning your estate, contact us.

[1] https://nationalpost.com/news/canada/step-families-becoming-the-new-normal-in-canada-2011-census

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.