Blended Families

I have thought about this many times. Blended families. They’re so common place nowadays. But what happens to the children of a 1st marriage when a parent passes away?

For tax purposes, it’s efficient to ensure that the proceeds from registered plans go to the spouse. It’s a “rollover” and is tax free from one spouse to another. If you had your children as the beneficiary, the proceeds of a registered investment are taxed at source and those taxes would be paid by the estate.

But how do you leave an “inheritance” for your children and still be “tax efficient”? The solution is simple. Life insurance.

By having life insurance in place, the proceeds are paid out tax free to the beneficiary or beneficiaries. That way, the children from a first marriage are taken care of and receive a guaranteed inheritance or a portion of your estate when you pass on.

I recall in my own family and in my spouses family scenarios whereby in the 2nd marriage, everything went to the spouse. It was understood and agreed upon at the time that an inheritance would be forthcoming to the children of the 1st marriage by decree of the Will of the surviving spouse. But that never happened. It was never guaranteed that the children from the 1st marriage would receive that inheritance. It all went to the children of the spouse of the 2nd marriage.

Had insurance been in place, the proceeds of the life insurance could have been allocated to the children of the person who passed on. And, as noted above, that would have been a guarantee that those children would have an inheritance from their parent. The estate, the registered investments, or any other investments could go to the surviving spouse. Thus resulting in an equalization of payment to all concerned.

Something to think about if you’re entering a 2nd marriage whether it be because you are a widow/widower or because you’re a divorcee.