Estate planning in Canada for blended families is critical to understand, particularly for wills, domestic agreements, and protecting assets in new relationships.
In this episode of Smart Advice, we delve into the intricate world of estate planning for blended families—a crucial yet often overlooked topic for many Canadians. Estate planning becomes significantly more complex when it involves couples with children from previous relationships, second marriages, or common-law partnerships, which are increasingly common across the country.
Our guest, Richard Voss, Director of Wealth Strategies at CIBC Private Wealth, shares expert insights to help protect your family’s legacy. Tune in for practical tips on managing wills, powers of attorney, and trust planning to help avoid potential conflicts and ensure everyone’s interests are protected.
[5:44] Richard: “If you are remarried or in some provinces common law, and intend to leave your entire or the majority of your estate to your children and you die without a will, recognize that a portion of your estate will go to your new spouse. This can vary depending upon the province you reside in, unless you have what's known as a domestic agreement or a marriage contract in place.”
[10:15] Richard: “When two families are coming together to be one new family, it's important for the new heads of the household to be in tune with what type of a spender they are and what type of a spender their new partner is.”
[27:36] Richard: “Parents often times underestimate the complexity of their financial situation and overestimate the ability of their personal representatives, such as executors and beneficiaries, many times kids.”
Richard Voss is the Director of Wealth Strategies at CIBC Private Wealth. With over 37 years’ experience in the financial services industry, Richard advises families in the areas of wealth and enterprise planning including business succession, family governance and legacy planning.
Richard holds an extensive background in wealth strategy and is dedicated to simplifying estate planning for Canadians. He focuses on providing tailored, actionable advice that addresses the unique financial dynamics of today’s modern families. This ensures smooth wealth transfer and long-term financial security for future generations.
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Carissa: Welcome to Smart Advice, a podcast connecting you with real financial advice, investment strategies and economic trends, empowering you with insights you need to make smart decisions about your money. I'm CIBC financial advice expert, Carissa Lucreziano.
For Canadians with family homes, cherished heirlooms, or cash inheritance to pass on to the next generation, estate planning is an important part of ensuring your wealth is transferred smoothly. And every family has its own dynamics that can bring unique challenges and considerations. That process can become even more convoluted with blended families, where one or both spouses have children from previous relationships.
In Canada, just over one in 10 couples with children are step families, according to the 2021 Census Data from Statistics Canada. That means 12% of couples with children in Canada are considered blended families. To add even more to that complexity, entering a second or third partnership or marriage could come with a truckload of personal assets built over time, as well as cemented attitudes and values about how to spend, save and preserve money.
The 2021 census also found that 23% of couples in Canada are living as common law partners, the highest percentage among G7 countries, depending on the province or territory where you live, common law couples may have different legal rights for married couples. Blended families can also extend beyond the nuclear family with grandparents raising their grandchildren or a family member taking guardianship of a niece or nephew, cousin or younger sibling. We're going to talk about this too today.
Joining me today to discuss estate planning strategies with commingled families in mind, is Richard Voss, Director of Wealth Strategies at CIBC Private Wealth. Richard is one of our resident experts in wealth planning for families, and spends so much of his time discussing and advising on topics just like this one. Richard, welcome to the podcast.
Richard: Wonderful to be here, Carissa. Thank you for having me.
Carissa: Always a pleasure, Richard. Now, you and I have had many chats on this broader topic of estate planning. We've even done some virtual events together. I'm excited today to dive deep into estate planning considerations from this lens of you know, expanded families. This is such an important topic, so many more Canadians can use advice here. Let's face it, it's an exciting chapter in someone's life, representing growth and unity. However, there's a lot to think about.
So let's talk about second marriages or common law partnerships. Bringing families together and the management of finances can create significant complexities, especially if one or both individuals have children from previous relationships. When two families are coming together, what are some considerations of estate planning for the next generation that are important to pause and plan for?
Richard: Well, this is actually an excellent place to begin, and I would say that for most individuals entering these new relationships, they should really take a moment and really understand the lay of their financial land. As a first thought, they should really have a good understanding about what their estate is. What are the different assets that they own? Financial, hard assets, even soft assets as it pertains to when I say the word soft assets and hard assets, I should be a little bit more specific.
In terms of hard assets, we mean real estate, cars, things, collections, that sort of thing. When we think of soft assets, we're thinking about, know-how of the family knowledge capital. Sometimes you can have a soft asset that's got an emotional attachment to it, so it might be a family heirloom, that sort of thing. But the most important thing is to really understand what the inventory is of your estate. What are those different components? While I was just talking about assets, you should also be very much aware of what your debts and obligations are as well.
Part of that review should also include reviewing your current wills and powers of attorney, documents for personal property and for care. Because there can be a real risk, but in some cases, a former partner or a former spouse may still have the ability to act on your behalf in certain circumstances. So understanding that, I would say, is a first step, but I would even take it one step further back and say, let's start by saying, ensure you have a will and power of attorney in place, because it is so very, very important.
In fact, today, only 50% of adult Canadians actually have a will. So if you are finding yourself in a situation where you've entered a new relationship, or you are entering a new relationship, make sure that you update your estate planning to provide yourself and your family the adequate amount of protection that they need. And, it is important for you to seek legal advice to understand the new legal obligations that you may be taking on when entering a new marriage-like relationship. This would not only be legal obligations towards your new partner, but possibly other family as well such as stepchildren. Another thing is make sure that your planning, especially your will planning, is up to date. As an example, legislation does change, and in Ontario, marriage used to revoke a will now it doesn't.
Furthermore, recognize that your estate planning is not just about your will and your powers of attorney. Make sure your beneficiary designations on registered accounts like RRSPs and tax free savings accounts, insurance policies and pensions are all up to date. If you are remarried or in some provinces common law, and intend to leave your entire or the majority of your estate to your children and you die without a will, recognize that a portion of your estate will go to your new spouse. This can vary depending upon the province you reside in, unless you have what's known as a domestic agreement or a marriage contract in place.
As a general rule of thumb, kids in blended families should also seriously consider having wills and powers of attorney much younger as soon as they turn the age of majority. Because their planning can influence the parents' planning as well. Finally, trust planning may also be considered where you do want to provide for your new spouse through your estate plan. But there are many, many potential traps to avoid and many considerations to reflect upon. Such as the relative ages of family members, the types of assets that will be in the trust, the financial situation of different family members.
As an example, a spousal trust can be created for a new spouse. If that spouse happens to be a younger spouse, then recognize that those assets may be trapped in that trust for the life of that new spouse. That could defer an inheritance to your children for quite some time. For blended families, I cannot stress the need enough for a domestic agreement. A domestic agreement is a contract that outlines the obligations and rights of a couple when their marriage relationship comes to an end.
Notice I use the word when instead of if. That's because a domestic agreement covers relationship breakup, but it also covers what happens on the death of a partner in the marriage-like relationship. Don't forget that even if you do have a domestic agreement in place, you still need a will and a power of attorney for property and for personal care.
Carissa: One of the things I heard Richard, which is loud and clear for anybody, you know, we're talking about the coming together of blended families and considerations and time in a person's life where you know, normally, you would have accumulated some assets, but I heard you say, like, 50% of Canadians don't have a will. I'm assuming that's just even a basic will.
Then I heard a couple other things that are really important: inventory of your assets is so important, understanding what you have, and that's on both sides of the balance sheet as you mentioned. Reviewing your will, but do you actually have a will? Something interesting also, you said, and I think the message here is, there's a way that you can do both.
You can take care of your new partnership and relationship that you're going into, and also take care of your children. There’s a few ways to do that and you mentioned the domestic agreement well and so forth. So there's a lot to consider, but I think it starts with just really understanding, what are your assets?
What are you coming into the new relationship with that'll help you think about how do you want to protect those? So if you're coming together as a blended family, you and most likely your partner will want to protect the assets that you're bringing into that family. So you kind of just touched on that domestic agreement piece.
There are usually two important priorities to consider and setting the tone is so important, but it's hard to do. So how do you work to build financial stability together as a couple from that unity, but also protect your own children's financial interests, making sure that they're provided for. this
Richard: This is another great question. I'd like to actually start by sharing a resource for everybody and just let our listeners know that cibc.com, in the Smart Advice section, has an excellent article entitled “Five Tips on Talking About Money With Your Partner”. While it may not be specifically directed towards blended families per se, or second or third relationships, it's an excellent tool and resource that all family members can consider or couples can consider when they are entering the new relationship.
But there are some additional things that I'd like to say as well. That's because I observe a lot of things with couples when it pertains to their cash flow. I would say that when two new families are coming together to become one, or when two families are coming together to be one new family, it's important for the new heads of the household to be in tune with what type of a spender they are and what type of a spender their new partner is. If one of you spends more freely and the other is much more conservative, it can create disagreements about money.
So examine your different approaches and work out your spending rules of engagement. Many couples have a number that they set that they agree upon. If they encounter a potential purchase for a good or a service that goes over that number, they have a talk. Also work out a plan as to how you will work together financially. Here you have some choices, think of it as a continuum.
At one end of the continuum, your finances can be fully integrated in terms of expenses, savings and shared goal achievement. On the other end of the continuum, expenses and savings could also be quite separate, especially if partners are coming into a relationship with significantly different amounts of capital and income. In situations where people have been separated or divorced before due to money disagreements in the past, they may be more reluctant to have joint accounts with their new partner,at least at the beginning of the relationship.
In either case, I recommend that you do a full cash flow statement and monitor your cash flow regularly so that you can keep a tab on potentially different approaches to spending and addressing these differences with open conversations. Also, it's important to understand how assets will be owned and how will debt obligations be owned? Think about the assets and debts that you are bringing into the relationship. Think about the assets and debts that you may acquire together through your individual and shared goals.
How could ownership impact the family relationship dynamic and the eventual estate distribution work out what your individual goals and shared goals are, and build a financial plan to achieve those goals. In some cases, this could be a joint financial plan, but it could also be an individual plan, or maybe even both. Really, there is no wrong answer here, but with one exception. Not having a plan, I strongly believe, is the wrong answer.
Carissa: Thank you. That's, again, a lot to think about. I think one thing that's overlooked a lot is what you mentioned around the spending rules of engagement. Like, here's $1 amount, anything over we have a conversation, or maybe it's an item. I'm sure there's buffers that are aligned to that dollar amount, but it's interesting.
I think it's overlooked a lot is coming together, and that could just be in any relationship in terms of income. Especially if somebody has a higher income than the other, who's going to pay for what debt, who's going to pay for what? Then something interesting, I think you said that is so important, especially coming into, let's say second, third, fourth relationship is that, it's okay to have your own personal goals and your own personal plan, as well as joint goals and a joint plan.
I think that's really important to note, because especially if you're coming into a relationship with having built sizable assets and again, like values around money, I think it's important to consider that, and if, if you need that. That's okay to consider it and to keep that. for sure.
Richard: For sure. I think it's also important at this point to flag that a lot of what we're talking about today is not prescriptive. It's really, they're really guiding principles— and each relationship and blended family is going to have its own unique attributes and considerations.
These are broad moving strokes, but really, each family needs to sort out what their true situation is and come up with an approach that will best serve them. The important thing to note here is that there are experts in the field that can help them with this.
Carissa: Yeah, I want to talk about communication for a minute. I know this is a big piece for you. It’s something that you help families with all the time, just even understanding how important it is. In this situation, thinking about bringing two families together, it's really important to think about the children's unique needs to understand various elements about the new family dynamic and how it's going to affect them.
This would look very different depending on the child's age, like if they're young children or if they're teenagers or adults. But all are very important to understand and communication is key here. I know I mentioned you’re big on this, but where do you start? I've seen you in action like I said, advice in this realm is your expertise.
What conversation should parents have with their children? Should it include finance? Should it include finances? Rather? And you know, what are some considerations you should make for minor children versus adult children?
Richard: That's great, and you're absolutely right. This is so close, near and dear to my heart. I work with families all the time in terms of financial communication, if you will, and financial literacy. If there are some new minor kids in your blended family, as a parent, you have to recognize that they may have been socialized differently about money and spending than yourself and potentially your children that you're bringing into the relationship. This will just simply need some time to adjust and work out.
Minor children should be continued to be supported for their interests and passions. They should be made to feel emotionally and financially secure, that in spite of a big change in the family structure, they can feel that there's a certain amount of certainty in their future. Open communication with all families should demonstrate an abundance mentality where everyone can feel that they can have and that they can give what they need without feeling competitive pressure with new family members.
This can happen because all of a sudden you've got these new siblings that are consumers of family resources and even emotional resources. Adult children, on the other hand, may view a blended family quite differently. They may have different norms about money than the new partner. They may view an uptick in spending, particularly luxury spending, as a threat to their parents financial security and in some cases, maybe even their eventual inheritance. Of course, there is a real threat and concern for predatory relationships as parents age and experience a decline in their cognitive abilities.
In general, I default in saying that parents should speak with their adult children about their estate plan. I would say that there is even more reason to do so when it comes to blended families. If the parent is going to provide for the new partner in their estate plan, having discussions can provide time for the adult children to reflect and to ask questions. This can be valuable for avoiding or managing disputes down the road
Finally, care decisions, responsibilities, and the financial costs of care may also be on the adult children's minds. What will be the plan if their biological parent passes away first, and there is no one to care for the step parent? Blended families with aging parents need to also have good discussions about care options well before an emergency happens. The issues surrounding care decision making and the cost of care will only increase with increased longevity in our aging population.
Carissa: A lot to consider. I think what is really important through all of that is just the opportunity and the consideration to having the discussion and even understanding how that children is feeling, it'll help you to really know where you need to focus on. So married couple versus common law couple, these are two legal partnerships in Canada, but can differ significantly in the eyes of the court.
Sometimes a gray area for many to see, like, what is the difference in the eyes of the court between the two. Then more and more couples in Canada are living in common law relationships, including blended families and couples with children. Those living in common law relationships were more than four times as likely to be step families compared to their married counterparts with children. This is from the Statcan Report of 2021.
So, Richard, grassroots here. First, what defines a common law relationship, and what are some financial planning considerations people need to stop and think about?
Richard: Well, I'm glad we're covering this, because the statistics that you mentioned at the very beginning of this are so true. What was most startling to me is that Canada has the largest percentage of couples that are common law versus married. So I found that quite interesting. I'm glad we are talking about it.
When it comes to defining what a common law couple is in Canada, it's actually not that easy to define. The answer is— it kind of depends. It depends upon a couple of different perspectives. That first perspective is location, location, location. Where are you in this country? What province, provincial jurisdiction, or territorial jurisdiction are you in?
Then the other lens to look through is, what type of a legislative lens are we looking through as well? So if we look at the provincial legislature lens first, we'll start with a couple of examples. In Ontario, you become a common law couple after you've been cohabiting three years in a conjugal relationship or sooner if you happen to have a child together. Common law couples in Ontario, though, do not have any property rights, unlike married couples in the province of Ontario.
For another example, that's to provide some contrast, in British Columbia, you are common law after two years of living together in a marriage-like relationship and you actually have property rights in the event of a relationship breakdown. Then finally, the last one I'll just take a look at quickly, is Alberta. In Alberta, the language of common law relationship is not really used. They use the term adult interdependent partner or adult interdependent relationship to describe a common law relationship.
Basically, you have, and for short, is called an AIP. You have an AIP after three years of cohabiting or if sooner, if you have a child together, or if you've entered into what they call an adult interdependent partner agreement. When I say that term, that's very similar to the domestic contract or the domestic agreement that I mentioned. In Alberta, adult interdependent partners actually have property rights, just like married couples.
What's really interesting is that it appears that an adult interdependent relationship in Alberta may or may not be a romantic relationship, which is quite interesting. It's different than what we have seen with the previous examples for Ontario and British Columbia. So there is some progression in the legislation. I believe that the Alberta legislation is under five years old. I think it came out in 2020-ish, so there is progress.
What's really important to understand is that if you do need to protect your rights, recognize that legislation can also change what your rights are. Again, that's another argument to consider a domestic agreement. What's important to note here as well, if we look at what a common law relationship is through a different lens, meaning a federal legislative lens, for tax purposes in particular, the Federal Income Tax Act defines a common law relationship as 12 months in a conjugal relationship, or have a child together and living in a conjugal relationship.
So whether or not you are common law depends on which lens you are looking through. From a planning perspective, however, it's important for you to first off, from a provincial perspective, know what the rules are for your jurisdiction. If you happen to be moving from one jurisdiction to another, understand that the rules may be completely different, especially where property rights are concerned. Recognize that you can protect each other with that cohabitation agreement, which is a domestic agreement more suited for common law couples.
I would say that if you are in a jurisdiction where there are no property rights for common law couples and you have no cohabitation agreement, it is wise to do a financial plan for yourself based upon your own resources. This gives you a clear picture of your financial strength and flexibility.
Carissa: That's interesting. I know this specific topic could be an entire episode. I just think getting that advice because you know, you could be missing out on something. It's always good to say whether you know, for example, you mentioned Ontario, there's no property rights, but BC or Alberta, that's new to me, that it doesn't have to be a romantic relationship. Maybe it's two friends that are, you know, living together for whatever reason. That's really interesting and important for Canadians to know.
But you know, irrespective of property rights, I think in order to protect yourself and the assets that you have accumulated, it's really good to get that advice and to think about that domestic agreement, cohabitation agreement, as you call it, vital.
Richard: Yes and actually, it's a great moment for us to actually shine the spotlight on the need for the proper legal advice and recognize that you may need a different legal practitioner for different things, right? So if you're doing your wills and your powers of attorney, you want to make sure that you are working with an estate lawyer. That estate lawyer will typically have a good grounding in terms of what the family law provisions and rules are and legislation is for that particular jurisdiction.
But there are some cases where you may want to do a domestic agreement with a family law lawyer. It really just depends upon the circumstances. The important thing is to make sure you are working with a qualified legal practitioner.
Carissa: Yes, absolutely. As we're talking, estate planning in general can be a complex topic. It can be overwhelming and it is overwhelming to many. That's why I think only 50% of Canadians have a will, because it can be so daunting. However, we have to remind ourselves as we've been talking throughout this episode, it's all about how you've spent all that time to be able to build your assets. Whether that's the tangible ones, as you mentioned earlier, it's really important to be able to protect it. So it's complex. There's a lot of variables.
What we're talking about today in terms of blended families, it can even vary depending on the family structure, the dynamic, the values, all of those things. I mentioned earlier, like, you help real families every day with this and these topics and you personally provide them with the tools they need to make those decisions that we've been kind of talking about sprinkling throughout this discussion.
If there are a few items to take away from our conversation, for those that may be starting a new marriage, a new partnership, or just really interested in this topic, maybe they're just welcoming a new family into the fold by coming together and they want to protect their own children, what would those few takeaways be?
Richard: Oh that's great. This is probably a wonderful way for us to tie some ideas together, for people to take with them. It might be a bit repetitive but I think there's some value in that. I'll say revisit your estate planning often. Annually would be ideal, but especially when you have a major change in your circumstances. Whether that be in terms of wealth, acquisitions of assets and liabilities, or changes in relationships, very important.
Have open discussions with your partner about money. Once you're on the same page, facilitate conversations with the whole family and do your best to avoid side verbal agreements or commitments. Document your intentions when evolving your understanding of your estate and how it will be distributed.
If you make an asset joint, we didn't even talk about that from an estate planning point of view, but if you make an asset joint with a new spouse, recognize that it may not end up with your biological children. If you make an asset joint with an adult child, document your intentions, whether it is a gift or whether it has been made joint for the ease of administration. Parents oftentimes underestimate the complexity of their financial situation and overestimate the ability of their personal representatives, such as executors and beneficiaries many times kids.
They, many times, overestimate their ability to make good decisions together. As appropriate, introduce your new spouse to your professional advisors, tax, legal, financial advisor at the bank, investment advisor, all professionals. And then have them do the same for you. Have your adult children introduced to these professionals as well.
Finally, I'll say, family meetings can be a helpful way for you to determine where potential conflicts among your spouse, children, and step children may exist. Family meetings are also a forum for you to express your desires regarding your estate plan. Hearing your goals in your own voice may help alleviate future misunderstandings about your wishes among your family members.
Carissa: Yeah, well, thank you for that Richard. I mean throughout this whole conversation and I'm glad you mentioned the family meeting because I learned that from you years and years ago. I think it's absolutely incredible and integral to this whole topic that we're talking about. I think you mentioned it, the openness and transparency within the partnership comes first and then the next step is you can bring in the family.
I think that's important to understand is in all of this understanding your own needs, whether it's the inventory of your assets, your value of money,and how you feel, and then the discussion with the partnership, and then you bring in that family, and that family meeting is so important. Again, I said like I learned that from you, but it just keeps that transparency and understanding of what the family dynamic needs.
Something interesting you said is sometimes we overestimate the ability of our beneficiaries and our executors. We underestimate the complexity of our estate and I don't mean complexity by like, tangible pieces, but just even from an overwhelming perspective. How children, if a parent passes away, they're in a state of there's so many emotions, like, even if they can handle that.
So that's really important that you mention that to say, even though an estate may not be complex in nature, you know, you know, black and white, pen and paper, the whole process can be overwhelming to those that are left behind. So really, considering the way things are planned and set up for that ease is important. absolutely
Richard: Absolutely, and because many times, I think the real reason why people do underestimate their complexity is because they're living it every day so it has become a routine for them. I think it's easy to conclude that anybody can just simply step into your shoes and continue onward. I'm glad you brought in the concept of, well, when somebody passes away, you're in a state of grief. You might not be able to step into those shoes easily. There just might be other obstacles along the way.
So it's also important to recognize that it may even make sense to explore having a professional executor, such as a Trust Company, to potentially step in and act as a professional executor or a professional trustee, or even a professional attorney for property. All major banks have a trust company. We have CIBC Trust and they help many families in many different circumstances with the management of their affairs when they are no longer able to do so themselves.
Carissa: Yeah and I'm glad you mentioned that because some may not know that's an option. But with complexities and people being very busy, it's an alternative to consider of having either your children or whomever being your executor.
Richard: Yes.
Carissa: Well, Richard, thank you so much for this great conversation. I know this topic is a very important one. Thank you for the tips. Thank you for outlining some of the most important pieces to consider. It is a journey. We've talked about a lot today. It's a journey.
It's not something that is done overnight, but Richard, you mentioned it. It's about understanding your own finances and then also having the professionals around the table to help you. So thank you so much for joining me today. Such a pleasure always having a conversation with you.
Richard: Completely my pleasure as well. Thank you for having me again
Carissa: For the latest insights on estate planning, managing your wealth and taxation strategies from CIBC experts including Richard, check out cibc.com/smart advice and the CIBC private wealth insights hub.
Thank you for tuning in to this episode of Smart Advice. I’m Carissa Lucreziano. If you enjoyed this episode, feel free to share it with your social network. To make sure you'd ever miss an episode, follow smart advice on your favorite podcast platform.