New spouses invariably upset the inheritance apple cart

Article content

The blending of a family can invite a lot of questions among the newly united spouses and their children: Who lives where? Will the kids get along? Will they like their parents’ new partners?

Throw in questions about estate planning, however, and those questions can become heated.

When new members join a family, what kind of steps can all parties take to protect themselves and their inheritances?

Update the will

The obvious answer from the experts is to cover these issues in a will. But many high-net-worth people don’t have wills or haven’t updated them despite major life changes, says advisor Elke Rubach, president of Toronto-based Rubach Wealth: Holistic Family Advisors.

Rubach, who also has a law degree, points out: “If you want to guarantee a disaster, then don’t have a will or don’t talk about it and see how things unfold. It’s like, ‘Here are the guns, go play.’”

In a blended family, key questions must be answered, she says:

• How is the relationship with your ex-partner?
• Are you divorced, and do you have kids from the previous relationship?
• Do you have any support obligations to your previous partner?
• How sophisticated is the previous spouse versus the current one?
• How have your values changed, or has the divorce changed you in one way or another?

Spousal support for a previous partner

Other questions to consider are whether a business or personal X is involved and how they will be inherited. Do the children and the current spouse inherit equally or fairly? (“Equal” and “fair” are often not the same, estate planners say.)

That’s why Rubach says it’s not as simple as sitting down and creating a will.

If there is a previous spouse in the picture, you should first talk to your current spouse and explain the length of your spousal support obligations to that person, Rubach says.

“If it’s round two, you run your financial model and you say, ‘I’m on the hook for this long for this much,’” she says. “You identify what it looks like so that everybody’s aware. Then you let your lawyer know and document it. There are no surprises for the second spouse.”

Testamentary trusts for the spouse and children

When it comes to assets, one way of passing them on to children from the first marriage while letting the second spouse benefit is by using a testamentary spousal trust. That ensures that the surviving spouse has monetary support for the rest of his or her life.

After that person dies, the trust passes on to the children of the parent who created the trust.

Can children ask the spouse to sign an inheritance contract?

What if the relationship between the children from the first marriage and the second spouse is especially fraught and there’s a lack of trust all around? Can the children ask for a contract to be signed by the second spouse offering guarantees to an inheritance?

Rubach says that anyone can write a contract covering whatever they want, if all parties agree and are competent and capable and they are able to enter into a binding agreement. However, that’s where an advisor can offer expertise.

“[Creating contracts] is where I find that financial advisors need to take that extra step and really need to be resourceful and keep an eye out for all the problems that could come up that people miss,” she says.

She also points out that even if the will is signed and agreed to prior to death, an aggrieved family member can question the will and sue the estate if they have enough money and time.

Conversations could mitigate family drama

Estate planning and inheritance disputes are emotional because they often are not about the material assets, says Mallory McGrath, founder and CEO of Toronto-based Viive Planning.

“A big thing is really looking at what gifting anything means emotionally,” she says. Parents may think that since they’ve been in a relationship and their children are adults, everything is great. But what a lot of parents don’t realize is that children expect to receive things when their parents die, as that has been ingrained in us.

“So, if all of a sudden that’s removed, and it’s not explained during the parent’s lifetime, then the children have this visceral emotional reaction of ‘Dad didn’t love me,’” says McGrath. “It’s not a matter of, ‘Oh well, this makes logical sense that he left everything to wife number two’. No, it’s ‘Dad doesn’t love me. He didn’t leave me something.’”

Even if your children get along during your lifetime, a parent’s death can make them feel possessive over possessions. In other words, if nothing is explained during the parent’s lifetime, there could be fights after their death.

So conversations are good. But McGrath is often asked whether that should consist of one meeting with everyone or separate meetings with the spouse and the kids.

“When I’m dealing with couples who are in second marriages, or even just cohabitating together, I say up front, ’You, the spouse with children, have to decide really where your priority lies in death,” she says. “Is the priority your spouse or your kids?”

The second a family becomes blended, a parent sets new priorities, and the main one is to support the new spouse, she says. Then you have to sit down separately with the kids and explain why it is so important that you leave the majority of your estate to this new spouse who has been in your life for a decade, perhaps, as opposed to your children, who have been around for 40 years, or vice versa.

No matter what your priorities are, McGrath says, speaking in a non-judgmental way to explain your reasoning can help. Plus there’s no reason why the children can’t initiate the conversation.

Children can choose language that isn’t so selfish sounding, too, she points out.

“You can say, ‘Hey, obviously you love stepmom, and she’s wonderful and we love her. If anything ever happens to you, we are going to be involved and we will make sure that she is taken care of, but we’re also aware of the fact that we’re a blended family and that could get really complicated.’”

More from Canadian Family Offices:

• How to transfer wealth to next generation efficiently using trusts
• Inheritance power move: leaving money to charity so you don’t spoil the kids
• Estate-plan pitfalls for the 1 million Americans living in Canada
• How to bulletproof your will

Please visit here to see information about our standards of journalistic excellence.