Financial planners need to work closely and continuously with blended families to ensure their often diverse and complex financial goals are met successfully, said Jacqueline Power, director of tax and estate planning, with Toronto-based Mackenzie Financial Corp. at the Canadian Institute of Financial Planners’ 16th annual national conference in Halifax on Tuesday.
There are key questions financial planners need to ask their blended family clients to ensure their investments are protected and their long-term goals attained, Power said during a presentation on estate planning for blended families. Foremost among those questions is if the clients have an up-to-date estate plan.
“For many blended families the goals they want to achieve in the future are not being achieved with their current estate plan,” Power said. She recommended financial planners encourage their clients to review their wills and powers of attorney every three to five years. “There is planning to be done, no matter what blended family situation your client is in.”
The complexity of the blended family necessitates this. Many blended families comprise younger individuals who may bring children to a new relationship and who may have additional children with their new partner. They will want to protect the financial security of both. As Canadians age, there also are increasingly new blended families with grown, adult children. These parents want to ensure their children from a previous relationship inherit.
Financial planners play a central role in educating and motivating clients to see the broader estate planning picture, Power said. For example, they need to ask whether there’s documentation in place should your client become mentally incapacitated? Is that documentation sufficient?
The financial issues for blended families become even more complex if one or both of the spouses own a business. This requires financial planners to keep current with tax laws. Under the changes the federal Liberal government introduced this past year, it may make more sense for owners to take money out of the corporation rather than relying on dividend income, said Power: “It’s really important for your clients to be aware of that passive investment income.” She also noted that individual pension plans are becoming popular once more in the current tax climate.
These tax changes also represent an opportunity, said Power: “This is a great time for you to work with your small business owners. Have discussion that focus on capital gains.”
To highlight how complex estate planning can be for blended families, Power cited an example of one couple, Kate and John, who have lived together for seven years and have a child together. They each have children from a previous relationship and some of those children live with the couple.
Kate, who’s 52 years old, has a business worth $5 million that her daughter is interested in running one day. John’s assets are considerably less, but they do include a family cottage he inherited. John is also still married (his wife does not want a divorce) and has a $1 million life insurance policy. His wife is the beneficiary.
As the example clearly illustrates, Power said, “there is a lot of planning involved in these situations.”