Estate Planning for Blended Families

A blended family (ie stepfamily) is where one or both spouses in a marriage have children from a previous relationship. Blended families have become more and more common as Alberta and Canada’s societal values/demographics continue to change. It is important for blended families to understand the
unique challenges that can face them in estate planning, as well as the important documents that make up a well-planned estate.

Why is it important for blended families to plan their estate?  

The landmark case in Alberta on the problems that can arise when passing away without a will in a blended family is the case of Peters v Peters Estate 2015 ABCA 301. Here the Alberta Court of Appeal was clear that the estate of a parent who passes away without a will, in a blended family, has a legal obligation to distribute the assets to their biological children but has no such obligation to non- biologically related stepchildren.

To avoid circumstances such as this, it is recommended that you have your estate planning done by a lawyer who can guide and assist you in drafting your will in compliance with the law, without missing any of your obligations (e.g. child support, spousal support etc.) from previous marriages or relationships.

Wills and Testamentary Trusts for Blended Families

Wills are the documents by which one’s assets and possessions will be disbursed when they die. The trusts created to be executed upon a testator’s (the person making the will) death are called testamentary trusts and are usually tied intrinsically to the will. Other instruments, such as life insurance policies, would also count as testamentary trusts, and are often used as a part of the will to provide a method of securing child/spousal support obligations, while maintaining the estate for the benefit of other family members.

An example of a commonly used testamentary trust created in the blended family context is that of the spousal trust. It is important for clients to know the benefits and limitations of such a trust and the corresponding tax obligations it can create.

Spousal trusts are used to provide for a spouse until they pass and, in most cases, have the remainder distributed to their children. In blended families, special attention is paid to the children of previous marriages, as their rights in a testamentary trust need to be explicitly included. The tax benefits that arise in a spousal trust are that, when assessing income tax, the assets placed into the spousal trust on the testator’s death would be tax deferred until the assets are disposed of by the spouse (or by the children named in the trust conditions, upon the spouse’s passing). The challenges with this trust that can arise are that, in a typical drafting, the entire fund can be used by the surviving spouse before any funds can be disbursed to the children.

Another relevant factor is that of probate taxes, which are the taxes automatically paid to the government when the estate is distributed. In cases such as this, other estate planning tools such as living trusts may be more effective in balancing the necessary interests. Please contact us, and our experienced estate planning lawyers will help you decide if a spousal trust is right for your family!

Personal Directives and Enduring Power of Attorney

Personal Directives are legal documents used to plan who will make any non-financial decisions on your behalf should you lose the capacity to make decisions for yourself. Enduring powers of attorney are used to assign who will be making financial decisions should you lose capacity. These two documents work together and are often drafted at the same time. In a blended family, these documents often cause the greatest friction in their drafting, as appointing who will make these difficult and life altering decisions can have significant implications for a family’s future relationships.

As blended families become more prevalent in Alberta and Canada as a whole, the necessity of having a well drafted estate plan will only continue to increase. Juriscorp Law’s skilled estate lawyers are always ready to assist in answering any blended family estate planning questions you may have, as well as answering any questions or concerns about your unique family situation.

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