Family planning

Saturday, 01 June 2013
Adel Gonczi and Pamela Rideout discuss estate-planning options for common-law and blended Canadian families

Family structures are changing in Canada, as the most recent census, from 2011, reveals:

  • the number of common-law couples had risen 13.9 per cent since the previous census in 2006;
  • married couples accounted for only 67 per cent of families, marking a consistent decline over time; and
  • 12.6 per cent of couples with children reported living in step-families: 7.4 per cent in ‘simple’ step-families (all children are the biological or adoptive children of one parent) and 5.2 per cent in blended families (at least one child of both parents and at least one from a previous relationship, or at least one child from each parent and none from both).

In this article we focus on the estate-planning issues affecting a growing number of common-law partners and blended families, and provide some estate-planning options for them.

Common-law partners

Definition of common law

When considering estate planning for a common-law relationship, the first question should be: ‘How is a common-law relationship defined in this context?’ For personal income tax, the Canadian government has said that it means cohabitation for at least one year. For other purposes (intestacy, matrimonial property, etc) it varies between provinces. We will consider several scenarios.

Matrimonial property and common-law partners

Matrimonial property is usually determined under the relevant provincial legislation, which, in many provinces, applies only to legally married spouses. Without the legislation to help common-law partners divide their property, they can be left only with equity claims of unjust enrichment or quantum meruit, as would any two sharers who purchased property together.

Pensions are another type of property where common-law partners are often out of luck under provincial matrimonial law. While the mechanism of the division of a pension on breakdown of a relationship or death is generally determined under provincial pension legislation, entitlement is often determined under provincial matrimonial law. Common-law partners are usually contemplated in the definition of ‘spouse’ within the pension plan, but will not find assistance in provincial matrimonial law on the breakdown of the relationship. As such, the division of a pension plan as a matrimonial asset can be restricted to legally married spouses, and the common-law partner will have to bring a claim within the pension plan, if available.

Drafting cohabitation agreements and co-tenancy agreements can be useful to set out the property rights and obligations of common-law partners on separation, and wills can play a similar planning role for common-law partners on death.

Support obligations for common-law partners

Spousal support obligations are often triggered by cohabitation of common-law partners for a certain period (typically one or two years).

Under the Federal Divorce Act, married spouses are required to maintain ‘children of the marriage’ pursuant to the Federal Child Support Guidelines. Non-biological parents who act in loco parentis to children of their married or common-law partner may also be responsible for parental support obligations. Common-law partners must look to the applicable provincial law to determine whether statutory provisions require them to provide support for their step-children. In some provinces, however, common-law partners are required to support only their biological children.

Planning options on death of a common-law partner

If a common-law relationship follows a divorce, a new will is important, as in some jurisdictions a divorce has no effect on a will, and can result in unintended gifts to an ex-spouse and exclusion of common-law partners. If there is no will, intestacy legislation will apply, which usually does not recognise a common-law partner in the distribution of the estate. In such cases, the common-law partner could look to the provincial dependant-relief legislation; however, they may find that it is not applicable to them, depending on their province. Also, someone will need to apply to be appointed administrator of the estate, and a common-law partner could be met by resistance from other family members entitled to apply, such as children of the deceased. The appointment of a surviving common-law partner as executor is a good starting point to enable a surviving common-law partner to maintain control over the distribution of the assets of a deceased partner.

One asset for which common-law partners see some relief outside the will is registered retirement savings plans (RRSPs). On death, an individual is deemed to dispose of all of their assets, including their RRSPs. The disposal of the RRSPs creates a deemed income inclusion for the total value of the RRSP. This can be avoided, however, if an individual has a spouse to whom they can ‘roll’ assets. For income tax purposes, ‘spouse’ includes a common-law partner. An interesting situation arises when an individual is legally married but separated, and has a common-law partner as well. In that case, the spousal rollover can apply to both individuals, as they both meet the definition of spouse found in the Income Tax Act.

Jointly holding unregistered assets, such as bank accounts, is a common planning tool intended to allow assets to pass outside the will. Before 2007 the presumption was that a jointly held account was held with a ‘right of survivorship’. This means that each individual is deemed to own 100 per cent of the account following the death of the other. This changed in 2007 with two Supreme Court of Canada decisions: Pecore and Saylor. The Court held that for other than legally married spouses, on the death of a joint-account holder, the presumption is that the account is held in a ‘resulting trust’ for the estate. This means that if common-law partners hold a bank account in joint ownership, when the first partner dies the survivor is presumed to hold the account in trust for the estate of the deceased partner. This can become problematic if the deceased partner did not have a will and the laws of intestacy apply.

Planning for incapacity

Generally, when a person is incapable of making decisions about their personal healthcare and treatment, applicable statutes provide a hierarchy of substitute decision-makers that the medical professional can turn to. The spouse is always at the top of the hierarchy, but is not always defined to include a common-law partner. In such a case, the common-law partner could be overlooked in favour of a parent or child. It is important to recognise this and have proper documentation prepared appointing a substitute decision-maker.

Blended families

Balancing priorities

Estate planning for blended families can be an exercise in balancing competing priorities. Here we are talking about legally married spouses who are planning for children of a prior relationship as well as the spouse and children of their current relationship. Individuals in a blended family often struggle to balance providing for their new spouse with protecting the interests of their children from a prior relationship. There are a few options to consider in such a situation.

Planning within the will

Testamentary trusts are a good option for planning for blended families. Leaving property in trust allows the surviving spouse to use the assets during their lifetime, but on their death there is a ‘gift-over’ to the children. This protects the asset if the surviving spouse remarries, as the asset will be property of the trust, not property of the surviving spouse. An individual can even restrict the surviving spouse’s ability to encroach on the capital of the trust, provided that this does not run afoul of the provincial family law in terms of support obligations. A final benefit of a testamentary trust is that they have their own set of marginal rates and thus are favourable from a tax perspective.1 Note that a cottage or home can also be left in trust with the spouse able to use the cottage or home during their life and the children as ultimate beneficiaries. However, it is strongly recommended that such a trust be accompanied by sufficient funds and directions on how the cottage- or home-related expenses will be paid.

If a testamentary trust is not desirable to a client, they can prepare ‘mutual wills’ accompanied by a mutual will agreement. This is a written contract in which the parties agree that the surviving spouse shall maintain a will giving some or all of the joint wealth to children of the deceased spouse (the survivor’s step-children).

Other planning

Some individuals would like to benefit their biological children on their death, so that they do not need to leave it up to their surviving spouse. Life insurance policies are a good way for a client to create the wealth to fund such a gift. Such life-insurance proceeds can pass directly to children outside the will, or be directed to the estate and used to fund a testamentary trust for the benefit of the children. In some instances, the children will contribute to the cost of the life insurance on their parent as an investment strategy for an asset that they will ultimately benefit from.


We have touched on only a few of the planning considerations for common-law partners and blended families, as this is a complicated area of law. Nevertheless, such planning considerations become increasingly relevant as our families change over time. The key item is the importance of having a solid estate plan in the first place. This is something no common-law partner or member of a blended family should be without. 

  • 1In the most recent Federal Budget, the Department of Finance indicated that it will be looking at testamentary trust marginal tax rates to determine whether this is appropriate tax treatment.
Author block
Adel Gonczi and Pamela Rideout

Adel Gonczi and Pamela Rideout are Associates with McInnes Cooper.

The content displayed here is subject to our disclaimer. Read more