June 2024 - Legal Update - Estate Planning For Common Law Couples In Blended Families

In our last article, we reviewed estate planning from the perspective of married couples. In this article we consider estate planning from the perspective of common law couples in blended families. Unlike married couples, common law partners do not have the same legal rights, making it crucial to establish a comprehensive estate plan to ensure their wishes are honored and their loved ones are protected. This can become especially more challenging when there are children from previous relationships. This newsletter will review some of the central items of estate planning and review several considerations for common law couples planning their estates in a blended family.

1. Understand Legal Recognition: In Ontario, you are only considered common law after you have cohabitated for three (3) years together with your spouse. However, being common law does not provide you any automatic rights to the property of your spouse. This is different than married couples, who are entitled by default to receive at least one-half (1/2) of the growth of marital assets. Knowing that there are no automatic protections makes estate planning that much more important, especially for common law spouses who own their own homes.
    
2. Review insurance options: Understanding your options for life insurance can be one critical way to protect your children from a previous relationship. Working with a trusted insurance professional can be one of the most important aspects to an estate plan. This is because most common law couples intend for their spouse to be able to live in the family home when they pass away. However, in many situations an individual’s net-worth and equity is largely inside of the home they own. Many people want their spouse to live in the family home after their death without needing to sell it. This leaves very little equity available for the children from a previous relationship and there is no guarantee that the surviving spouse will include the deceased partner’s children in their own will. This means that insurance that can pay out on your death is a very convenient way to create a fair allocation of value and cash to your children, without over-complicating your estate plan. However, as discussed below, there may be instances where cohabitation agreements or insurance trusts can be helpful tools for blended families.
    
3. Draft a Will: Preparing your last will and testament is essential for common law couples. In the absence of a will, the estate may be distributed according to intestacy laws, which often do not recognize common law partners. Instead, children (or your parents!) will be given automatic protections, leaving your spouse very few options apart from litigation assuming a claim exists. While this article cannot address the various types of claims available to spouses, including constructive trust, joint family venture, dependency relief and spousal support, a will can avoid the need for litigation between family members. Your will can clearly outline who you want to be the executor of your estate, and how you want your assets distributed. This can include provisions for your partner as well as your children from a previous relationship. Working with a lawyer to prepare your will can help prevent disputes and ensure everyone is provided for according to your wishes.
    
4. Consider a Cohabitation Agreement: A cohabitation agreement can serve as a valuable tool in defining property rights and financial arrangements. This legal document can specify whether there are any assets, such as business shares or investment properties that cannot be made subject to any claims by the spouse. This could leave those assets available to be distributed to your children from a previous relationship as set out in your last will and testament. Often times, a cohabitation agreement can stipulate the growth of equity inside of a home that is equally shared between spouses, while preserving the capital contributions made by one of the parties towards the home prior to the parties becoming spousal. This can be an important estate planning tool in the event parties want to go on title as joint tenants to avoid probate while guarding their investment in the home. If there is an unfortunate separation, a cohabitation agreement can clearly identify the contributions that must be returned to one party. This is vital when there exists a child from a previous relationship who depends upon the equity already established by their parent. A cohabitation agreement can divide assets in the event of separation or death, and even if the parties marry in the future, providing clarity and protecting both partners’ interests.
    
5. Establish Insurance Trusts: Trusts can be particularly useful in blended families, allowing for more control over the distribution of assets. In some cases, it is not clear that a common law spouse will actually become the guardian of the minor children in a blended family. This is especially true when the biological parent from the previous relationship has any rights to parenting whatsoever. This can mean that designated trustees such as siblings or mutual friends of the spouse and child from a previous relationship can be designated as the trustee on the face of an insurance policy. The payment to the trustee is simplified because the designation avoids probate. Meanwhile, the insurance trust agreement can stipulate in more detail how the trustee will need to govern the money available from insurance. Options include staged distributions and allocations for education and gift overs in the event of death and funds are left remaining in the trust. This ensures that both the partner and the children are cared for according to your wishes, without creating an overly complex and lengthy will.
    
6. Review Financial Plan: Further to the insurance conversation above, having a trusted financial planner to advise you on your investments and ensure your estate goals are met is highly recommended. If you have separated from your partner, you must ensure that all beneficiary designations on life insurance policies, retirement accounts, and other registered financial instruments are up to date. These designations can override what is stated in a will, or even create risks of litigation if left unaddressed, making it crucial to align your investments with your overall estate plan.
    
7. Powers of Attorney: Appointing powers of attorney for financial and health care decisions is vital. These documents authorize your partner or another trusted individual to make decisions on your behalf if you become incapacitated, ensuring that your wishes are respected.
    
8. Communicate Your Plan: Openly communicating with your partner and family members about your estate plan can prevent misunderstandings and conflicts. Discussing your intentions and the reasons behind your decisions can help everyone understand and respect your wishes. You may wish to obtain independent legal advice without the presence of your spouse. This is because estate planning for common law couples in blended families requires careful consideration and proactive measures. By taking these steps, you can ensure that your loved ones are provided for, and your legacy is preserved according to your wishes. Consulting with a knowledgeable estate planning lawyer can provide personalized guidance tailored to your unique circumstances.
    

If you are interested in a consultation, do not hesitate to reach out to me at your earliest convenience.
 
Michael Liddiard
Liddiard Law Professional Corporation