Estate Planning For Blended Families

About six months ago, I met Sarah and Jack at an event. They told me they had been together for close to two years. 

Between them, they have five children. They wanted to make sure their children would be taken care of in the event of their deaths, but they were not sure how to go about it.

They also wanted to make sure their wishes would be respected and that their assets would be distributed as they see fit.

The blended family today is more common than ever. With a blended family, things can get complicated when it comes to finances and assets. That is why it's so important to have an estate plan in place.

If Sarah or Jack passes away without an estate plan, their assets may be distributed according to their province's intestacy laws (dying without a will), which may not reflect their wishes.

This can lead to children from a previous marriage being disinherited or the current spouse not receiving the assets you intended them to have.

An estate plan can help to protect assets and ensure those assets are distributed according to your wishes. This is particularly important in a blended family where there may be multiple spouses and children involved.

Now that Sarah and Jack have decided to blend their families, it is critical to update their estate planning documents to reflect the new circumstances. This includes updating wills, digital assets, trusts, and beneficiary designations to ensure that all children are provided for in the event of their deaths. They also need to have conversations with their executors. Failing to do so can result in unintended consequences, such as assets going to an ex-spouse instead of children or stepchildren.

The dangers Sarah and Jack need to avoid:

• Communication is key in any relationship, and it is important for Sarah and Jack to establish clear communication and expectations with each other, their children, and any stepchildren. Failing to do so can result in misunderstandings and conflicts that can ultimately harm the family.
• It is crucial for Sarah and Jack to treat all children equally and avoid showing favouritism toward their biological children. This can be difficult, but it is important for building a strong and healthy blended family. Failing to do so can lead to resentment and division within the family.

What kind of legacy do you want to leave behind?

The answer to this question will be different for every individual or couple, as legacy can mean different things to different people. Some may want to leave a financial legacy, ensuring that their wealth is passed down to their children and grandchildren. Others may want to leave a legacy of philanthropy, donating to charitable causes that are important to them.

To answer this question, it is important for Sarah and Jack to reflect on their values and what's most important to them. What do they want to be remembered for? What impact do they want to have on the world? Once they have a clear understanding of their desired legacy, it is important to let the estate professionals understand and make the necessary changes.

Who will be responsible for carrying out Sarah and Jack's wishes?

Choosing the right person to carry out your wishes is critical to ensuring your estate plan is implemented as intended. This person, known as an executor or trustee, will be responsible for managing your assets, paying your debts, taxes and distributing your estate according to your wishes.

It is a big favour to ask someone as they, on average, will be spending over 100 hours to settle the estate, not to mention that they must deal with impatient beneficiaries.

When choosing an executor or trustee, consider factors such as their age, trustworthiness, and availability.

It's also important to choose someone who shares your values and understands your wishes. Once you've identified the right person, make sure they're aware of your wishes and have a clear understanding of their responsibilities.

The other option is to hire a professional executor through a bank or trust company, but that choice comes with a higher cost. In many cases depending on the size of the estate, it may make the most sense.

The important thing is to have a plan.

How can you communicate your wishes effectively to your heirs?

Having conversations about your wishes with your heirs is critical to ensuring your estate plan is implemented as intended. This probably is the most important step.

Don't let your paperwork (the Will) do the talking for you when you are gone. Start by having open and honest conversations with your loved ones about your values, goals, and wishes.

Be clear and specific about what you want to happen to your assets, and make sure your heirs understand the reasons behind your decisions. Conflicts among beneficiaries can arise when one person feels they have been treated unfairly or when there is a lack of communication or understanding about the estate plan. This conversation is uncomfortable because couples like Sarah and Jack have no idea how their children will react when they are gone. 

Blended families face unique challenges, but failing to create an estate plan can lead to serious consequences for loved ones.

David E. Edey, CEA, is the author of Executor Help – How to Settle an Estate, Pick an Executor and Avoid Family Fights. www.davidedey.com.