When people separate or divorce, each spouse may enter into a new relationship and the result can be a blended family. There are all sorts of challenges that come with blended families such as learning how to parent children who are not yours. One of the greatest challenges is determining what will happen if one of the parents dies.
Typically if one spouse dies they will leave their entire estate to the surviving spouse who will use the estate to support themselves and to raise the children. But what do you do if some of the children aren’t the natural children of the surviving spouse? Can the surviving spouse be trusted to treat all of the children equally? Will all of the children even continue to live with the surviving spouse?
There are numerous ways to distribute your estate equally while providing some additional security for your natural children. One is to create a trust for your surviving spouse which allows them to receive the income from the trust for their lifetime so they can raise the children and on their death the remaining capital of the trust would pass to your natural children. A trust could also be created for stepchildren which would provide income for these children just until they graduate from university.
If you have life insurance, this life insurance could pass to your natural children as designated beneficiaries outside of your estate. The remainder of your estate can then be divided between your spouse and all of your children equally.
Tax implications have to be considered because for some assets such as RRSPs there is a tax benefit to leaving your RRSP to your spouse and not to your children as it will not be taxed until your spouse’s death.
Deborah A. Todd