Money matters for blended families
The makeup of the average household has evolved into a web of relationships, forcing many families to rethink the ways they handle their money.
The rise of divorce, remarriage and common-law relationships, coupled with the fact that many of us are starting those second families that much later in life, has transformed the traditional family unit into a fluid network of step-relatives, all with their own sets of financial expectations.
Blended families often have to care for several children and more than one household, for instance. But, while deciding who pays which bills and whose health insurance policies to keep can be tricky, the real worry for many couples bringing together assets and children from a previous marriage lies in their future.
By the time couples enter a second marriage they often have substantial assets — sometimes one more than the other. And planning for all the various contingencies can get messy.
It's important to remember, for instance, that once assets have been passed on to the new partner, you really have little say in what happens to them when you die.
The "yours, mine and ours" question always comes down to the same issue: How can I be sure that when I die, my children, as well as my new partner's kids, will all be treated fairly?
If your new partner is significantly younger than you, for instance, then your children may not want to wait until his or her death to receive all of their inheritance. The simplest solution here is often to take out a life-insurance policy and name the children from your previous marriage as beneficiaries.
But this may not address the testy "who gets what" issues that can haunt blended families.
Floyd Gradley, a trust and estate lawyer with Mackenzie Financial, offers the following suggestions, looking at "Jessica" and "Rob," both of whom have two adult children from prior relationships and are grappling with what to do with Jessica's house, the only major asset between them.
As many couples do, Jessica could hold title to her home in joint tenancy with Rob (unless she lives in Quebec, where this option isn't available). If she then predeceases Rob, he'll receive full ownership of the home, allowing him to dispose of Jessica's former interest as he wishes, including giving it to his own children.
If, however, Jessica wants to ensure that her home will eventually pass to her own children, she should hold title to the home as a tenant-in-common with Rob, Gradley suggests. This way her interest in the home will pass to her estate and her will can stipulate that, if she predeceases Rob, her interest will be held in a testamentary trust for his benefit until he no longer wants to live there or until his death.
Jessica's will might also ensure that while Rob was responsible for normal operating expenses, he could tap into some estate cash to pay for major maintenance or repair expenses.
The trust terms could also give Rob the right to use some or all of Jessica's interest in the home, with a matching contribution from him, to buy a replacement home in case he wants to relocate. Any portion of Jessica's interest which wasn't needed to buy the replacement home could be retained in the trust or distributed to Jessica's children.
Most importantly, Gradley points out, the trust terms would direct that, upon Rob's death or when he no longer wishes to use the home, the nets sales proceeds from Jessica's interest would be distributed to her children.
When deciding who would act as trustee for the trust, Jessica would need to consider whether Rob, her children, or an independent third party should look after all these concerns — a potentially contentious issue.
Her children might not like the idea of Rob as sole trustee because they might feel that they should also have the right to participate in any decisions respecting the home. And Rob might not appreciate their input if they're always wondering just how much money went to repair the roof.
At the same time, Jessica's friends or other family members may not want to act as trustee because they'd be caught in the middle of any family arguments.
In this case, a trust company might be the answer — for a fee, of course. It wouldn't be concerned about having to settle disputes and can act as an independent arbiter when it comes to any confusion.
Of course, while your home may be your largest asset, it's not likely your only one.
While you're reviewing your blended arrangements, make sure you update your will, and rename the beneficiaries on your retirement plans and insurance policies to reflect your new circumstances.
As well, if your children are younger, be sure to review your guardianship provisions for them.
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