My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, November 9, 2015

Blended Families are Twice the Estate Planning Fun…Even with a Marriage Contract

I have received numerous requests to write about estate planning for blended families. I thus asked Katy Basi, my resident wills and estate planning contributor, to write about this topic. Katy has graciously provided a two part post on estate planning for blended families. Today she writes about situations where there are marriage contracts in place and next week she discusses the issues that arise when you do not have a marriage contract. So without further ado, here is Katy!

Blended Families are Twice the Estate Planning Fun…Even with a Marriage Contract 

By Katy Basi

 

In any list of situations that create complexity in an estate plan, “blended families” are near the top. Given the number of potential issues involved, this post will address situations in which the currently married spouses have entered into a valid marriage contract with each other waiving all potential claims against each other's estates. My blog post next Monday will address cases in which no such contract is in place.

Note: All discussion is based on Ontario law – the relevant law in other provinces may be different.

Even in the simplest blended family situation, where there are no children from past marriages or common law relationships, the provisions of any contracts or court decrees relating to the prior relationships must be taken into account in creating the estate plan for the current spouses. Let’s take the example of married spouses Kurt and Brigit. This marriage is the first for Brigit, but Kurt was previously married to and divorced from Amber, and has ongoing support obligations to her due to Amber’s inability to work.

There are no children from Kurt’s first marriage. Kurt and Brigit want to leave their entire estates to each other, failing which to their children. However, Kurt has forgotten about the provision of his separation agreement with Amber requiring him to maintain a $500,000 term life insurance policy for her benefit. He used to have such a policy in place, but inadvertently let it lapse a number of years ago.

Kurt’s estates lawyer advises him that unless he reinstates the policy, Amber will have a $500,000 claim against his estate. This claim would greatly reduce his current family’s inheritance and lead to additional complexity, delay and cost in the administration of his estate. Kurt therefore puts an insurance policy in place for Amber’s benefit as soon as possible.

Now let’s take the example of John and Olivia, both of whom have children from their first marriages. John’s children from his first marriage are self-supporting adults who have finished their post-secondary education. Olivia’s child from her first marriage is still a minor, and she is required by her separation agreement to pay child support. This support obligation lasts until the child is 18 years of age, or, if the child is still in school, until the child attains age 25. John and Olivia also have two minor children together.

As John and Olivia have a marriage contract, each is free to create an estate plan without worrying about a claim by the other against their estate (it is also assumed that each of John and Olivia is self-supporting, and therefore would not be able to make a claim for spousal support against the estate of the other).

Olivia is therefore free to split her estate among her minor children from both marriages, if she so desires. She is under a legal obligation to provide for her child from her first marriage, as that child is a dependent of hers and could otherwise make a “dependent’s relief” claim against her estate through a litigation guardian.

John is under no such obligation with respect to his adult children, as they are not financially dependent on him. However, John may wish to leave part of his estate to his adult children, and he is free to do so as long as his estate plan provides for his minor children from his current marriage.

My next blog post will address these scenarios where there is no marriage contract. If we think of these testators as having a number of estate planning balls to juggle, failing to have a marriage contract adds a flaming torch into the mix!

Blunt Bean Counter Note: As per this post on recent changes in legislation in relation to the taxation of trusts, the new legislation can impact on estate planning for blended families. Thus, you may wish to confirm with your estate lawyer, that your will does not need to be amended in light of these tax changes.

If you enjoyed this post by Katy, you may wish to check out some of her prior guest posts such as: Qualifying Spousal Trusts - What are They and Why do we Care? and a three part series on new will provisions for the 21st century dealing with your digital life, RESPs and reproductive assets. She has also posted on the family cottage and wrote a very well received post titled, An Estate Fairy Tale.

Katy Basi is a barrister and solicitor with her own practice, focusing on wills, trusts, estates and income tax law (including incorporations and corporate restructurings). Katy practiced income tax law for many years with a large Toronto law firm, and therefore considers the income tax and probate tax implications of her clients' decisions. Please feel free to contact her directly at (905) 237-9299, or by email at katy@basilaw.com. More articles by Katy can be found at her website, basilaw.com. 

The above blog post is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice regarding any specific legal issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.