Blended Families: Retirement Finances, Taxes, Estates, and Planning
A change in your family composition, such as forming a blended family, can lead to situations that directly affect the age at which you'll be ready to retire. Be sure to plan ahead!
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, November 20, 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, definitions of spouse and child, deductions for 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 (Retraite Québec, Commission de la santé et de la sécurité du travail, Société de l'assurance automobile du Québec, social assistance, Guaranteed Income Supplement, the Allowance, student loans and grants, etc.).
- Go through the estate planning process (selecting an executor, designating guardians for children, planning for death).
- To avoid conflicts between members of a blended family, it is important to do the following:
- Consider each family member's relationship with money to avoid placing undue burden on 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 former spouses. Determining marital status before and after the new union is crucial since it can have a big impact, especially where family patrimony is concerned.
- Discuss the merits of listing any given person as the 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 process, since they may already have an inheritance from their other parent or a trust fund 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.