Q: In the case of a blended family should the mother of the children pass first, what is the obligation of the husband to his step-children? If the mother’s wishes have been satisfied as to jewellery and personal belongings being passed on to the kids, what is the obligation of the step father to these children with the remaining assets upon his death and during estate planning? The kids are in their late teens.
A: Blended families have confusing rights and obligations. Some are moral and some are legal rights so it’s difficult to give simple answers to your question because people frequently have more than one marriage and one partner. Blended couples may also have children from previous relationships or marriages and this can create potential conflict for those expecting a family inheritance. As well, there’s the time element—children and relatives may lose their inheritance or wait years to receive it.
But no question, blended families have special estate planning issues. These include:
- One spouse may have all the wealth
- Age disparities may create long term support needs
- Lingering emotional issues from prior relationships
- Who pays the taxes when the first spouse dies?
- Support obligations to prior spouses or dependents
- Choosing the right executor for your estate
- The need for contracts to deal with any of the above issues
Many blended families avoid these complex estate planning issues entirely by adopting a simple estate plan or none at all. They often rely on their surviving partner to do what they think is right. The surviving partner may comply with their wishes, or they hope the survivor will leave their step children with an inheritance.
One spouse can leave everything to their partner through a will. There may or may not be any strings attached. That means that a second spouse could inherit everything. The deceased spouse may merely trust their partner to respect their wishes. Step parents may have no legal obligation to carry out their partner’s wishes.
But where one spouse has substantial assets, estate planning can be difficult. Spouses with assets could set up a trust for their surviving partners. So for instance, Don wants to leave his house to his spouse Janet in a trust. While she is alive, Janet can live in Don’s house rent-free. When Janet dies the house is sold. Sale proceeds are divided only among Don’s children. Janet’s family members will not receive anything from Don’s wealth.
Trusts attach strings to control Don’s assets and trusts can also support Janet while she is alive. She can receive all the income from Don’s $2 million investment portfolio. But she may be restricted from using the trust capital of $2 million. Don can leave these capital assets in the trust to his children. This trust could be created in a will or outside of it in a separate trust agreement.
But tread carefully—trust arrangements are not for everyone. So don’t run to a lawyer and insist on a trust. You need substantial assets to make a trust worthwhile. Trusts also raise complex tax issues and can be difficult to enforce without having valid, signed contracts. Couples can make contracts to limit spousal rights to an estate. Such contracts are also called domestic agreements, and pre- or post-nuptial agreements. Domestic contracts require financial disclosure, fair bargaining and independent legal advice. If these ingredients are present, courts may enforce up-to-date contracts.
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Ed Olkovich is a Toronto lawyer and certified specialist in Estate and Trusts Law
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