Estate planning for blended families looks at wills, agreements, and beneficiary choices to help balance the interests of loved ones.
In my previous article (part 1 of 3), I addressed the estate planning opportunities for investment properties. Next week I will follow up with a discussion about family business succession planning. In this article (part 2 of 3), I will address estate planning for blended families.
Blended families often involve spouses (legal or common law) with children from prior relationships. Estate planning in such situations may lead to conflicts of interest, as each spouse may prioritise their own children’s interests. Additionally, mutual wills, prenuptial agreements, and beneficiary designations are tools that can be utilised to address these challenges.
Conflicts of Interest
Estate planning for blended families often involves competing interests between spouses and their respective children. In addition, inheritance by law and inheritance in accordance with a will may be drastically different for common law spouses and married spouses as well as children and step-children. While children may be included or excluded as beneficiaries in a will, they as well as the deceased’s married spouse may be entitled to certain estate share when inheriting by law in the absence of a will.
Mutual Wills
Mutual wills can be a useful tool for blended families, particularly when there is a clear agreement on the distribution of specific assets. Courts have acknowledged the relevance of blended family dynamics in mutual will arguments. However, the absence of a written agreement may lead to disputes, and drafters should carefully explore the spouses’ intentions to bind each other to future estate distributions as well as the enforcement mechanics of such arrangements.
Prenuptial Agreements
Prenuptial agreements play a critical role in defining business assets and addressing their division upon divorce. While these agreements do not necessarily preclude subsequent will changes wills variation claims, they provide clarity and can be persuasive in decisions of a court. Therefore, it is important to ensure that prenuptial agreements are comprehensive and address potential conflicts arising from blended family dynamics.
Designation of Beneficiaries
Designating beneficiaries for financial instruments such as life insurance policies and pension plans is a practical strategy to avoid probate and protect assets from creditors. This approach also saves Estate Administration Tax and ensures that funds are exempt from creditor claims. There are also some other estate planning strategies such as joint asset ownership that are worth discussing on a separate occasion.
Conclusion
Estate planning for blended families requires careful consideration of conflicts of interest, mutual wills, prenuptial agreements, and beneficiary designations. Consulting proactively with legal and tax professionals is critical to tailoring these strategies to your unique needs. If you would like to discuss your personal estate, or business succession planning opportunities, please contact Pavel Malysheuski at Boardwalk Law: [email protected] / 905.863.7428.
