Estate and more general financial planning are key considerations for an increasing number of Canadians who find themselves in blended relationshipsMONKEY BUSINESS IMAGES/Getty Images/iStockphoto
Blending two families can be an adventure, whether one or both partners have children from previous relationships or not. However, managing your new blended family's finances doesn't need to be a challenge.
"There don't have to be a lot of changes from the perspective of the things that are important to you," says Ken Dulai, a regional financial planning consultant at RBC in Toronto.
It's more a matter of planning the future, he says, noting too that estate planning is especially important for blended families.
Estate and more general financial planning are key considerations for an increasing number of Canadians who find themselves in blended relationships. According to Statistics Canada's 2011 data, more than 460,000 Canadian families with children are blended ones – about 12.6 per cent of the nation's 3.7 million families with children.
Mr. Dulai says blended families should pay particular attention to planning because sometimes the partners' expectations for their own children are different from their expectations for their stepchildren. "As with any planning – whether you're in a blended family or not – you should start by communicating with each other about your wishes."
Discussing issues together and planning ahead lessens the chance that a blended estate will be end up in court, in which case, he cautions, "what you wanted and expected doesn't always come to fruition."
Both partners in a blended family should ask themselves some key questions, according to Mr. Dulai.
"What are my goals – what do I want to achieve? Once you have that in mind, ask: Do I have that in place now? If not, then ask: What steps do I need to put in place, so these goals can be achieved?"
Your answers should lead to the planning details and resources you need to make sure your finances, retirement savings and estate are organized to be in harmony with your wishes and to help your family members the way you have in mind.
"Blending families adds a level of complexity to estate planning and trust plans," notes Sandra Foster, a Winnipeg-based financial consultant and the author of a forthcoming book on the subject, You Can't Take It With You. "If not done properly, a will might inadvertently leave out children from a prior relationship."
Ms. Foster also warns that "Blended families should not do 'do-it-yourself planning'."
Mr. Dulai notes that designating an executor is an important step and there are some considerations to take into account when thinking of who should take on this role. For example, many Canadians designate their spouse or children as executors without realizing that this can be an onerous role that becomes considerably more complex with blended families. An alternative is to designate an executor who is perceived as being a neutral third party.
Prenuptial agreements or a marriage contract are also something to consider before remarrying, because often in a blended family, the partners are bringing assets they accumulated before getting together. A prenup is arranged before marriage by couples who want to spell out their financial rights and obligations in their relationship. A marriage contract can be drawn up for couples who are already married and common-law couples can enter into cohabitation agreements.
"Whether it's a prenup, a marriage contract or a cohabitation agreement, there's value in this for all families," says Mr. Dulai.
Every situation is different, but a contract or an agreement can address a common concern among blended families – how the new couple will use their money, together or separately, to support the children and stepchildren for educational and other needs.
Domestic contracts, Ms. Foster explains, "allow you to keep what is yours, yours, and your spouse or partner to keep what's theirs, theirs." She recommends that each partner provide "full disclosure of financial assets, and each person needs independent legal advice."
Mr. Dulai says blended couples should also consult with their adviser to review carefully the types of investments each partner holds, because the taxes and other rules for each type can be different.
"The textbook example is someone who wishes to provide equal treatment to their two children, each from a different marriage, leaving a home to one child through their will and designating the other as the beneficiary of their RRSP for exactly the same value," he explains. "For the RRSP, generally the full value goes to the beneficiary but the tax liability for the RRSP goes to the estate. If the home is the only asset of the estate, the home may have to be sold to pay the taxes on the RRSP, leaving less for that beneficiary."
This is why planning matters, Mr. Dulai points out: Every situation is different.
This content was produced by The Globe and Mail's advertising department, in consultation with RBC. The Globe's editorial department was not involved in its creation.