More than 500,000 Canadian stepfamilies face this estate planning blind spot — here's how to protect your assets

Bill has two adult children from a previous marriage. Tammy doesn’t have children of her own, and although she tried to cultivate a relationship with her stepchildren, they never made much of an effort to get to know her.

While Bill had about $250,000 in assets prior to the marriage, Tammy brought about $325,000 of her own assets into the marriage. They’ve since built up a $1 million nest egg and own their home.

Ultimately, it’s their money, and they can do what they want with it — and Bill wants to leave everything to Tammy in his will. He says his kids are irresponsible and would waste an inheritance.

But Tammy fears that Bill’s position will strain her relationship with her stepchildren further.

She’s wondering if there’s an estate planning structure that would protect her financially while preventing a family war if her husband passes away before she does.

On the other hand, if Bill outlives her, Tammy wants to leave her own assets to her late sister’s daughter.

Blended families mean complex estate planning

Blended families add complexity to estate planning. According to 2021 Census data, there were more than 500,000 stepfamilies in Canada (with at least one child from a previous relationship). Additionally, of all couples with children, approximately 12% were stepfamilies (1).

That’s why it’s imperative for partners in blended families to seriously consider an estate plan in the beginning. Unfortunately, most people avoid end-of-life arrangements altogether.

Less than half (48%) of Canadians have a will, according to a report by the National Institute on Ageing (NIA) in collaboration with RBC Royal Trust — and that number drops to just 34% for those aged 35 to 54 (2).

If you die without a will, also known as intestate, the province or territory where you live will determine how your assets are distributed, known as intestate succession. Intestacy rules differ significantly by province or territory, so the outcome for your family is regionally specific. This process takes place in court and can drag on for months or years.

For example, in British Columbia, a surviving spouse receives a higher preferential share ($300,000) when all children are conceived between the spouses, but only $150,000 when there are children from a previous relationship — directly relevant to blended families like Tammy and Bill's (3). Meanwhile, in Ontario, the preferential share is $350,000 regardless of whether children are from the current or a prior relationship (4).

The exception would be solely owned retirement accounts like RRSPs and life insurance, which typically skip probate and go directly to the named beneficiary. Also, property acquired before marriage isn’t automatically split.

When it comes to intestate succession, provinces and territories follow a hierarchy to decide who inherits assets and how much. The rules vary by province, but the general order is:

• The legally married spouse who receives a priority "preferential share" before the estate is divided with children
• Biological or adopted children — not stepchildren, who have no automatic inheritance rights under intestacy law in most provinces, including Ontario, unless they have been legally adopted (5)
• Parents
• Siblings, nieces or nephews

Critically for blended families: Common-law spouses are also excluded from intestacy rights in Ontario, Quebec, New Brunswick, Newfoundland and Yukon (6). And because stepchildren are not "children" under most intestacy statutes, a stepparent who dies without a will leaves their stepchildren nothing — regardless of how close the relationship was (7).

In contrast, couples who prepare wills can bequeath their assets to whomever they wish (including to one another).

Thankfully, Bill has prepared a will and certain assets will go directly to Tammy — including their joint bank accounts, jointly owned home and investments they’ve built together.