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Estates & Wills & Trusts, Tax

Proper planning best way to address complex blended family estates

Blended family situations have become increasingly common as many people remarry after a divorce or the passing of their spouse — but these individuals need to be aware that they will likely face unique considerations and complications when planning for the distribution of their estate, Calgary tax and fiduciary services lawyer Dennis Nerland tells AdvocateDaily.com.

As Nerland, a founding partner of Shea Nerland Law and leader of the firm's tax and estate planning practice, explains, many people in this situation have complicated assets, arrangements, and a disparity of wealth between themselves and their new partner that require careful planning.

In a blended family, Nerland says both the surviving spouse and minor children have statutory rights that need to be considered and provided for in a will. In some jurisdictions, adult children may also have some potential claims.

However, estate-related issues often arise in blended families as a result of poor communication or competing interests, he says.

“For instance, where a spouse in a blended family is named as executor, it is possible they may have competing maintenance and support claims with their deceased partner's minor children from their prior marriage,” says Nerland.

Another significant issue, he adds, is that too many people do not plan for the potential of one spouse predeceasing the other by several years.

Many couples also have mirrored simple wills leaving everything to each other, he says. In this case, on the death of the second partner, all the assets of both of the deceased could end up going to the second spouse’s children. This leaves the children of the first spouse with nothing, says Nerland, and can be especially problematic if the second spouse remarries after death.

“If a blended family does not structure their affairs in a proper manner, the result could be that one branch of the family receives everything, whereas the other receives nothing,” he says.

Conversely, says Nerland, leaving all the assets to the children may also not be possible, as a spouse has matrimonial property rights against their partner's estate. If successful, a matrimonial property claim must be paid first from the estate assets.

Instead, couples with a blended family should be sure to consider all family members wisely and take multiple planning scenarios into account.

Succession planning considerations for blended families tend to be unique to each situation, the asset base of each partner and their respective distribution goals, says Nerland, and will take into account factors such as the age of the children, age difference between spouses, level of income, wealth disparity between partners, and family dynamics.

The first step, he says, will involve open and honest communication between partners.

“Since many in blended families are more mature and have already created some of their own wealth, they may have each developed their own philosophies and established their own value system.

“It is equally important that once the spouses have come to an agreement about how they wish to settle their estates on their death, they communicate their plans to their family members. If the conversation will be difficult, a professional mediator may be considered to facilitate discussions,” says Nerland.

It is also valuable for families to work with qualified and knowledgeable professionals such as lawyers, accountants, and financial planners to ensure that their planning objectives are clear and their estate documents properly reflect those objectives, he says.

“Specialized estate lawyers are uniquely positioned to provide reasoned advice and options on distribution goals and outcomes to individuals in blended families.

“Most experienced lawyers have seen both sides of the equation, both when arrangements were successfully put in place, and when a lack of proper planning has led to relationship breakdown, issues in administration and even litigation between family members. This objective insight can be invaluable to a client when they are weighing their decisions,” he adds.

Nerland also stresses the importance of couples becoming familiar with the family law rules in the jurisdictions in which they reside and where they hold property.

“The rules on division of assets vary among the provinces and territories, and a prenuptial agreement, marriage contract, or cohabitation agreement may need to be considered for protecting a business or assets acquired prior to formalizing the relationship.

“If nothing else, these agreements will get the conversation started on expectations and values,” he says.

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