Blended Families: Retirement Finances, Taxes, Estates, and Planning

In its July 2001 issue, L'actualité magazine reported how common blended families had become:

"In Québec, 27% of children under 18 (450,000 boys and girls) grow up in single-parent or blended families. According to Statistics Canada, one in four children born in the late 80s had lived alone with their mother by the age of 6. For two-thirds of children born in 1983-1984, their parents had separated by the time they turned 10! Two years after the conjugal breakdown, 45% had inherited a step mother or step father. After 10 years, the figure rose to 85%."

These situations, sometimes very complex, can create problems that directly affect the age at which you'll be ready to retire. Find out how before the time comes!

A new phenomenon is also having an effect on family composition. Due to recent economic difficulties, many baby boomers are moving in with their adult children to reduce their cost of living. These individuals are referred to as "baby boomerangs" (US News and World Report, 20 November 2008).

Consider These 10 Recommendations

• Draw up a family budget.
• Consider how the property each spouse brings into the relationship will be used and divided up (household spending, investments, etc.).
• Discuss how each spouse feels about credit and responsibility for loans.
• Determine how much insurance coverage the new family needs.
• Set up an emergency fund to cover unexpected expenses.
• Remember how important it is to draw up wills, disability agreements, and either a marriage, civil union, or cohabitation contract (for common law spouses). Note that leaving everything to your spouse in your will could have negative consequences for your children from previous unions. In addition, if you leave all of your possessions to your spouse just to limit the tax burden on your heirs after your death, your possessions might not be distributed as you intended them to be.
• Learn how the new family status will affect your income taxes (income splitting, definition of spouse and child, deductibility of child care costs, medical expense credit, personal tax credit, family allowances, income attribution rules, etc.).
• Find out about your eligibility for the various public assistance programs (Régie des rentes du Québec, Commission de la santé et sécurité du travail, Société de l'assurance automobile du Québec, social assistance, Guaranteed income supplement, spouse allowances, student loans and grants, etc.).
• Go through the estate planning process (selecting an executor, designating guardians for children, planning for death).
• To avoid the conflict that can occur between members of a blended family, it is important to do the following:
  • Consider each family member's relationship with money to avoid unnecessarily overburdening the new family's finances. Is one member a spender and another a saver?
  • Draw up an exhaustive list of each spouse's prior financial commitments, especially with regard to their ex-spouses. Determining marital status before and after the new union is crucial since it can have a big impact, particularly as applies to family estate matters.
  • Discuss the merits of listing any given person as beneficiary—revocable or not—of your life insurance policy.
  • Determine how property will be divided up in the event that one of the spouses in the blended family dies. Children should also be involved in the exercise, since they may already have an inheritance from their other parent or a trust fund they'll have access to when they reach the age of majority.
  • In writing, set out the particulars of all funeral arrangements for each member of the blended family to prevent potential sources of unfair treatment or conflict.

Blended Families—Consult the Experts!

When creating a blended family, you may wish to consult a legal advisor, tax consultant, financial planner, accountant, investment consultant, financial security advisor, and even a budget consultant to provide a solid, fair-minded base for the family and help ensure its long term stability.