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Sam Sivarajan, managing director and head of Manulife Private Wealth in Toronto.

Tim Fraser/The Globe and Mail

Whether it involves inheritance, a family business, or any number of other assets, legacy planning is a hard enough task for any family.

But it ramps up significantly in the case of blended families, which now account for 12.6 per cent of the 3.7 million Canadian families with children, according to Statistics Canada figures released in 2012.

On top of that, high-net-worth blended families can add an additional wrinkle.

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"Typically the high-net-worth families have yet another layer of complexity because they've got a big family business, cottages, recreational properties that provide a whole other set of considerations to keep in mind," says Sam Sivarajan, managing director and head of Manulife Private Wealth in Toronto.

Mr. Sivarajan says that, in general, high-net-worth families try to negotiate their complicated situations by working with an array of advisors to cover off the legal, tax and accounting ramifications.

One key thing to bear in mind in inheritance planning, he adds, is the difference between treating children fairly and treating them equally.

"They're not the same thing," he says.

As an example, he says he dealt with a wealthy client who had two children. The elder daughter performed well academically and was accepted into Harvard University. The son, not quite as gifted academically, was accepted into a local community college, and then argued that his parents should cut him a cheque for the difference in tuition.

"If they cut him a cheque, they will be treating him equally, where what they should be doing is treating them fairly," Mr. Sivarajan says.

With both biological and non-biological children to consider in this situation, communication is paramount to ensure as smooth a transition as possible when it comes to things such as inheritance and the reallocation of assets.

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These can be difficult conversations, Mr. Sivarajan acknowledges, but he says that involving the children in the planning process might save a lot of tears down the road. The conversations do not have to get into the nitty-gritty details of exact dollar amounts, he adds, or who gets exactly what asset, but just to get each family member on the same page.

He adds that a cottage is a great example, and often a point of contention.

"The only way you can deal with a cottage equally is probably sell it and carve it up among each of the children," he says. "But dealing with it fairly might mean giving it to one child that is going to … get the most use out of the cottage and isn't going to promptly sell it off."

However, he says that in the latter situation, it is vital to make sure that other assets are going to the other children to make things fair.

It is an approach that should pay dividends, even if the children do not hear what they want to, says Matt Wilhelm, an advisor with Sun Life Financial in Kitchener, Ont.

"The more that you can explain to the children beforehand, the better it can be," he says. "Not because they're going to agree with you, but at least they're going to know not to contest the will or contest the share that they received."

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In addition to talking to the children, parents should talk to the executor of their wills.

Mr. Wilhelm says that he often hears examples at his practice of someone passing away or the power of attorney kicking in. Unfortunately though, he says that that person is often unsure of what was intended, for instance balancing assets between new children from the blended marriage and children from the original family.

"Having that discussion with the executor and power of attorney beforehand, not after the fact, is very important to head off any discrepancies or disputes," he says.

On top of that, Mr. Wilhelm says it is worthwhile to look at tax considerations for the different assets being passed on.

For example, he said people might want to consider leaving registered assets like a registered retirement savings fund or registered retirement income fund to the new spouse, because those can be passed between spouses without triggering tax. Then other assets, such as property or a non-registered investment account, can be left to the children.

When it comes to assets such as RRSPs, pension plans or insurance policies, it is also important to update any beneficiary information. These can often be overlooked, and sometimes the beneficiary names have not been changed since the account was opened.

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"People assume I just got married, everything will be the same, and it's just not," says Nathan Osterhout, a financial advisor with Edward Jones in Edmonton. "RRSPs, if you don't name a spousal beneficiary, the state will have no choice but to tax it at the highest marginal rate applicable in that province."

For parents who know that one or more of their children may not be particularly well versed at dealing with money, he suggests looking at trusts to help protect them.

"If they're making $65,000, $70,000 a year and suddenly they walk into $10-million, that's a good way to lose all your money," he says. "It's kind of like the lottery winnings that you see some of these people become bankrupt over."

When it comes to a new couple, each with a different net worth, they might want to consider creative ways to offset any imbalance when it comes to their legacy planning. One option might be to take out additional life insurance to offset any hurt caused by one child getting a vacation property.

With only 22 per cent of high-net-worth Canadians saying they have a detailed plan in place to pass on their assets, according to an RBC Wealth Management survey in January, putting a firm plan into place is a must.

Nancy Grouni, a certified financial planner with Objective Financial PartnersInc. in Markham, Ont., says the major consequence of not doing so is a person may not be passing on their assets in the manner they had intended. Additionally, it can mean passing on a reduced estate due to additional fees and taxes that could have been minimized.

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She says that in blended families, if assets were accumulated before the marriage, it may be perfectly fair to make a separate allocation of those assets to a spouse's children because the assets were accumulated beforehand.

She also promotes the use of trusts to ensure that each child gets what was intended.

"In most blended family circumstances, a traditional estate distribution, all to my spouse and then equally to the children, just doesn't cut it, it's not adequate," she says. "This is where trusts allow for far greater flexibility in planning."

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