Presentation to the Academy of Financial Divorce Specialists

1. Effective Blended Family Planning
Presentation to:
Academy of Financial Divorce Specialists
Nicole Garton, B.A., LL.B., TEP
Heritage Law
220 – 545 Clyde Avenue
West Vancouver, B.C.
778-786-0615 Ext.111
nicole@bcheritagelaw.com

2. The Blended Family
2

3. Estate Planning for Blended Families
 A blended family is where one or both members of a couple have children
which are not mutual (and possibly also children together);
 Increasingly common and give rise to conflicts and complexities greater
than when advising a traditional family (all children are the children of
both spouses);
 Added complexity, plus added emotional and psychological issues that
can arise in a blended family context, means there is a higher risk that
issues and conflicts may arise;
 The professional advisor must exercise a heightened degree of diligence
and caution when advising blended families.
3

4. Conflicts and Ethics
 Lawyers are in a fiduciary relationship with their clients and as
such owe a duty of loyalty, including:
 The duty of candour;
 Requires full disclosure of all information known to the lawyer that
may affect the interests of the client in the matter;
 The duty of commitment to a client’s cause;
 Nothing should conflict with a lawyer’s obligation to fully advance
his or her client’s interests;
 The duty to avoid conflicts of interest;
 The lawyer’s loyalty to or representation of a client cannot be
adversely affected by the lawyer’s own self interest of the lawyer’s
duties to another client.
4

5. Conflicts & Ethics Cont.
 BC Code of Professional Conduct is the governing document
setting out professional responsibility for BC lawyers;
 Key principle in Code: a lawyer must not represent one client
whose legal interests are directly adverse to the immediate
legal interests of another client without consent
5

6. Conflicts & Ethics Cont.
Code:
3.4-5 Before a lawyer is retained by more than one client in a matter
or transaction, the lawyer must advise each of the clients that:
(a) the lawyer has been asked to act for both or all of them;
(b) no information received in connection with the matter from one
client can be treated as confidential so far as any of the others are
concerned; and
(c) if a conflict develops that cannot be resolved, the lawyer cannot
continue to act for both or all of them and may have to withdraw
completely.
6

7. Conflicts & Ethics Cont.
 What to do when acting for a blended family where the spouses
are potentially adverse in interest?
 Informed consent (document terms of joint retainer in writing – see
CLE BC precedents); or
 Act for one spouse only and refer the other spouse out for separate
representation.
Practice Points:
 Where a joint retainer is accepted, the terms of the retainer should
always be confirmed in a joint retainer letter
 Consider in the final reporting letter to include advice given with
respect to various legal issues, especially where clients have chosen
to accept the risk that following death, their estate plan may be varied
or frustrated by the surviving spouse or a court order.
7

8. The Three “D” Pieces of the Puzzle
8

9. Essentials of the Blended Family Estate Plan
The Three Ds!
 Death (Wills, Mutual Will Agreements, Trusts, Jointures,
Beneficiary Designations)
 Disability (Power of Attorney, Representation Agreements,
Advance Directives)
 Divorce/Splitting Up (Cohabitation/Marriage Agreement)
9

10. The Will
 The foundation of a solicitor’s estate plan (unless unique situation
where an intestacy is desirable);
• Often used as a back up to other planning: trusts, joint tenancies,
designated beneficiaries;
• Sometimes primary planning tool because other options not available,
too expensive or clients don’t want complexity;
 Alter ego and joint partner trusts only available to those 65 or older;
 Trusts can be fairly expensive to draft;
 Older clients especially often don’t want administrative complexity or
ongoing management duties;
 Note: wills often required for disabled beneficiaries to retain disability
benefits and to create a qualified disability trust and long term graduated
rate eligibility under the Income Tax Act
10

11. The Will, cont.
Drafting Considerations in a Blended Family Context:
 Balancing spousal provisions and children’s expectations
• Gift to spouse and children on the first to die?
• Spousal trust?
• Choice of Executor – Spouse, plus adult child? Adult child from each
spouse to act together? Neutral party such as trust company?
11

12. The Will, cont.
Drafting Considerations in a Blended Family Context, cont.:
 Under Family Law Act, S.B.C. 2011, c. 25, now possible to
appoint a successor guardian to stand in the deceased’s shoes
(vs. prior where there was one sole guardian of the children)
 Can appoint new spouse to be co-guardian with the surviving
parent of the children
12

13. The Will, cont.
Drafting Considerations in a Blended Family Context, cont.:
 Careful with funeral instructions and personal effects to
prevent disputes
 Trusts for personal use real estate? Short & long term – does
spouse or estate pay expenses?
 Recreational real estate – draft spousal trust carefully to defer
capital gains taxes until last spouse to die (note: surviving
spouse must retain right to use property for lifetime)
13

14. Mutual Wills Agreements
 tension: how to provide for second spouse while securing the
inheritance for the children of the first spouse to die?
 risk: the children of the first spouse to die have no recourse
against the surviving spouse under s. 60 of the Wills, Estates
and Succession Act (“WESA”) if he/she decides not to provide
for them
 mutual will agreement: an agreement to make wills which are
coordinated and meant to revoked or amended only by
agreement – the surviving spouse is bound by the terms of the
agreement and cannot change their will
14

15. Mutual Wills Agreements, cont.
 Often terms will be that the survivor must leave a will in the same
form as the first to die or must not revoke his/her existing will
 Agreements vary on what assets are bound by the agreement
and the use the survivor may make of assets during his/her
lifetime
 Pros: useful when trust planning not available due to age, cost or
the nature of assets
 Cons: inflexible; assets still vulnerable to claims of creditors and
subsequent spouse of last to die
15

16. Mutual Wills Agreements, cont.
Drafting considerations:
 may be included in will itself or separate document;
 Specify what property it applies to;
 Specify survivor’s rights to use property during his/her lifetime;
and
 Address how the agreement may be amended, if possible.
16

17. Inter Vivos Trusts
 Potential trusts available: residence trusts, insurance trusts, spousal
trusts, alter ego and joint partner trusts;
 Since 2000, if 65 or older, can establish alter ego and joint partner inter
vivos trusts on a tax deferred basis;
 21 year deemed disposition rule does not begin to apply until the death of
the settlor for an alter ego and the death of the surviving spouse for a joint
partner trust;
 Allows enjoyment and control of assets during lifetime, providing for a
surviving spouse (if desired) and then assets can pass to children from
first marriage;
 Also avoids probate fees and potential variation claims by unhappy
spouses and children.
17

18. Inter Vivos Trusts, cont.
Alter Ego & Joint Partner Trusts:
Pros:
 s. 60 WESA (wills variation) protection;
 Probate fee avoidance;
 Incapacity planning;
 Privacy;
 Orderly and faster administration;
 Creditor protection.
18

19. Inter Vivos Trusts, cont.
Alter Ego & Joint Partner Trusts:
Cons:
 Cost;
 Added complexity;
 cannot transfer RRSPs & RRIFs in;
 May trigger Property Transfer Tax;
 Note availability of related individual/primary residence exemption
code 5, then exemption code 26 transfer from one trustee to another)
19

20. Jointures, Designated Beneficiaries
 Can be used to allocate assets as desired between spouse
and children from first marriage;
 Risks to children of first spouse to die if assets pass to second
spouse directly;
 Watch income tax consequences, document all intentions
carefully.
20

21. Incapacity Planning
 Powers of Attorney for finances;
 Representation Agreements for health care (appointing
decision maker and documenting health care instructions);
 Advance Directive for documenting health care instructions
only;
 Consider the relationships and feelings of various parties in the
event of one or both spouses becoming incapable.
21

22. Power of Attorney Restrictions
 Generally speaking attorneys cannot do anything of a
testamentary nature (sever tenancies, alter beneficiary
designations, change wills or modify trusts);
 Divorce by power of attorney? Adult must have intent to
separate prior to incapacity;
22

23. Family Law Agreements
 Cohabitation/Marriage Agreement: a property agreement
governing entitlement to support and assets if the spouses
separate or die;
 Instructive but not certain to defend against a family law or
wills variation claim;
 Agreements can be set aside if there wasn’t full financial
disclosure, if there was duress or if it’s patently
unfair/unconscionable;
23

24. WESA Family Law Issues
 Spouse loses succession and wills variation rights immediately
upon separation under WESA (may have to sue spouse with
declining capacity or their estate after death under the Family Law
Act);
 Possibility of post-humous births;
 A step-parent can be obligated to pay support for step children;
 Intestacy: if deceased children are step-children of surviving
spouse, surviving spouse receives first $150,000 and the balance
is split equally between spouse and children; surviving spouse
has right to purchase home
24

25. WESA Family Law Issues, cont.
 Are the parties separated if one goes into long term care?
 Long simmering tensions with step-children can surface when
one or both of the spouses begin to lose capacity;
 Does the spouse have the capacity to form an intention to
separate?
25

26. Help Clients Plan Now for the 3 Ds
26