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Christopher Bowlby
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Estate Planning for the Modern Family

Posted on: May 22, 2019

The concept of a traditional family has evolved with time, and as a result, so has family estate planning. A new, modernized strategy for estate planning is needed to accommodate family structures that differ from the traditional model. In today’s world, family structures are diversified; they include blended families, common-law spouses, single households, one-parent families, divorced/separated couples, same-sex families and multiple-spouse families. With this diversity, there is a need to address various complexities like multiple beneficiaries or heirs-at-law. Further, with increased global lifestyles, families may straddle different geographical jurisdictions. In this article, I will outline the estate planning considerations and tax-implications for what may be considered a non-traditional family structure.
Married and Divorced Couples.  Estate planning is typically addressed prior to marriage among families with a considerable amount of wealth. However, it can also be redressed or dealt with at any time throughout the course of a marriage. In a marriage, spouses’ property rights, financial arrangements and obligations for their biological or common children are all intertwined. Thus, the importance of drafting a will for each spouse is paramount. The will of each spouse will impact the financial status and flow of assets to younger generations and other intended beneficiaries. As such, each spouse’s will affects the other’s succession plan.
A marriage contract, also known as a domestic contract, is one solution to estate planning offered by law. For example, in the event of divorce, a spouse’s rights to property owned by the other spouse may be defined. However, a marriage contract does not address child custody and child support.
So, why may you want to enter into a marriage contract? In most provinces, provincial law equalizes the difference in net worth accumulated by each spouse at the date of separation, also termed the valuation date. In all provinces, with the exception of Quebec, a marriage contract functions to override the terms of provincial family law in the event of divorce. In a lifetime, it is possible and increasingly likely that you may enter into multiple marriages. Some of these may be short lived while others will expand decades. However, you may wish to avoid sharing your wealth across multiple marriages. A marriage contract will enable you to protect your finances and limit your future sharing of wealth upon entering a third or second marriage. This is especially beneficial to individuals who have children from previous marriages.
In most provinces and territories, marriage revokes the existing wills of spouses, but does not touch powers of attorney or beneficiary designations. Alternatively, divorce does not revoke wills but voids all appointments and gifts written into the will in favour of the former spouse. As such, divorce enacts a legal vacuum of all things voided. It is recommended that estate planning documents such as wills, powers of attorney and beneficiary designations be redrawn in the event of a divorce. This will allow you to represent your intentions moving forward.
Separating from a marriage is an incredibly difficult experience. It is emotionally challenging and may leave you engulfed in a mental fog. Thus, it is extremely important for you to understand the necessary steps to take from an estate planning perspective. Below is a comprehensive list of our recommended next steps of which a member of our wealth management team can help you to enact.
  1. Rewrite your will
  2. Sever jointly held property into co-tenancy
  3. Purchase life insurance to fund child and/or spousal support payments
  4. Change beneficiary designations on existing policies and plans
What are the tax implications in the event of a marital breakdown?
Essentially, the tax advantages available to married couples are voided when divorce is granted. Married couples file their annual income tax return jointly. Thus, married couples can arrange their financial affairs as a family unit to minimize applied taxes. Additionally, employer pensions, spousal RRSPs, TFSAs and capital gains tax deferral on transferred property from one spouse to another are amoung other tax advantages offered to married couples. In the event of divorce, you will want to attempt to negotiate the allocations of certain tax implications and advantages between you and your spouse.

Common-Law Couples. In most provinces, common-law status is granted after 3 years of cohabitation; status may be granted in a shorter period if the partners share a child. In most respects, common-law couples are treated legally as married couples for taxation purposes. However, provincial statutes governing family and succession law is different. Below is a simplified list of key points for common-law partners as it relates to estate planning:
  1. Common-law partners may not have automatic rights to any portion of a deceased spouse’s estate as they are not always recognized under provincial property of succession law. However, a common-law partner may be able to apply for continued support from a deceased spouse’s estate under provincial dependant’s relief legislation, or for a share of the value of the deceased’s property under a constructive trust claim.
  2. Common-law partners are recognized under ITA for tax purposes. This means that the assets of a deceased partner may be rolled over the surviving partner on a tax-deferred basis.
  3. Common-law partners can enter into a cohabitation contract, which functions similar to a marriage contract. However, most cohabitation contracts restrict the right to share in the value of property owned by one spouse.
What are the tax implications for common-law couples?
Largely, the tax implications for common-law couples are a product of differing property rights than those available to married couples. Succession and family law governing spousal property is located under provincial statues, as such, estate planning implications will vary provincially.

Blended families. A blended family is generally defined as a family group of a number of spouses/partners and their respective children. The family groupings are typically not related except by the relationship between spouses. In essence, a blended family is typically a family structure of two spouses who both have children from previous relationships. The estate planning implications of blended families are often a result of complicated family dynamics. There may be a reluctance to communicate openly due to possessive and protective attitudes and behaviors of each family group toward their direct members, especially shared or independent children.
Spouses that form the marriage of a blended family have rights to automatically share in the estate of their deceased spouse’s estate. However, step-children do not share in this right. This can prove to complicate the expected inheritances or child support of children from a previous relationship upon the death of their respective parent. Marriage contracts or cohabitation contracts are most often employed in a blended family structure as to ensure protection that adequately provides support for all dependents in the various family groupings.
New wills are absolutely necessary for blended families. As discussed previously, in the event of marriage, previous wills are revoked. The only exception to this rule is when an existing will was made in contemplation of marriage. If a spouse dies after their new marriage or re-marriage without either a new will or a will in contemplation of marriage, the deceased will be considered to have died intestate and provincial laws will govern the distribution of their estate. This has the potential to be devastating for the deceased’s intended beneficiaries in terms of both tax disadvantages and the passing of property to unintended heirs.

Single Households. A single household constitutes an individual with no dependents. In the event that a single household individual does not have an adequate estate plan, including a will, the default under state law usually provides that the entire estate is distributed to the individual’s closest relatives. In the event of having no relatives alive, all assets may be claimed by the government. Thus, the importance for single households to have an estate plan is paramount. The individual and an unattached person must prepare the estate plan and indicate its distribution.
  • Finding a trusted executor may be more difficult for single households. Often, people are comfortable with taking on this burden for family members, but close friends may be less inclined. Instead, the individual may choose to appoint a professional, such as a lawyer, accountant or trust company.
  • Risk of overlooked assets. Without the close observation of a relative or close friend, there is a risk that an individual’s assets may not be fully accounted for upon death. The individual should maintain an organized record of assets and ensure that their appointed executor knows exactly where to locate the record.
What are the tax implications for single household individuals?
An individual with no family has little opportunity to engage in advantageous tax planning strategies. For example, with no dependents to pass tax-sheltered capital property onto, the CRA will dispose of these at fair market value at the time of death. However, an unattached individual can take advantage of estate-freezing strategies to limit the tax liability at death. For example, the individual could transfer their assets to a holding company or take back preferred shares of an existing company and sell/gift the newly issued common shares to a friend or business associate.

Single Unattached Parents. It is unlikely that parents will die simultaneously, however, it happens. Thus, all parents need to prepare an estate plan that effectively describes how their parental role is to be filled in the event of their death. This is an especially pertinent consideration for single parents.
The appointment of a guardian to minor children is written into a will. The guardian will have immediate temporary custody of the children; within 90 days of the date of death, the guardian must apply for permanent custody.
What are the tax implications for single, unattached parents?
Single parents can claim an eligible dependent allowance for one of their children to receive a tax credit. However, upon death, there are tax disadvantages. A single parent cannot defer taxes on death as spousal rollover provisions are not available. Even if assets are left in a trust for their children, or granted to some other beneficiary, the assets are disposed of at fair market value. Tax-sheltered savings, such as an RRSP or RRIF, however, may be rolled over to registered plans for minor, financially dependent children and adult children, or grandchildren on a tax deferred basis.
In sum, the advent of non-traditional family structures can seemingly complicate the estate planning process. It is important to seek professional advice to ensure your wealth is distributed properly and your family’s needs are met. Contact a member of Bongard Wealth Advisory to explore the best estate planning strategy for you.


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