Many of the clients that I meet at my law office in Stittsville (Ottawa) are in second marriages. This nearly always adds an extra degree of complexity to their estate planning, especially if one or both have children from prior relationships.
The question they ask me is: “How do I make sure that my children get something from me but ensure my spouse isn’t left destitute?”
If one partner has no children and the other does, the question is: “Do I leave it all to my spouse’s children or should my family, friends or favourite charities get what I’ve accumulated during my lifetime?”
There are rarely easy answers to these challenging questions.
Some of the most common solutions I’ve seen are variations on the following three themes:
• Most if not all of your assets are owned solely by you and not jointly with your spouse. If there are sufficient assets (typically a quarter million or more), what you own at your death could be held in a spousal trust for your surviving spouse’s benefit. The assets in the spousal trust are used to help out your spouse during his or her lifetime but on his or her death, whatever is left of the trust assets goes to your children (or other beneficiaries as named in your Will). Note that RRSPs, RRIFs and the like cannot be payable to a spousal trust if tax is to be deferred.
• If your spouse has sufficient assets to support him or herself, you might both agree to keep all of your assets in your name alone throughout your marriage and name your estate as the beneficiary of life insurance, RRSPs, RRIFs and the like. Your estate is then distributed according to your Will which names your children or other beneficiaries. In this case, significant income tax will be payable at your death on assets such as RRSPs and RRIFs if your spouse is not the beneficiary. There is also a risk that a surviving spouse might make a claim against your estate for support. This risk could be reduced by having a marriage contract in place.
• Leave a nominal gift directly to your children (perhaps by having a modest insurance policy payable to your children) so that you are sure they will get something. Then leave everything else to your spouse with the understanding that she or he will include your children as beneficiaries of a fair share of the combined estate on your spouse’s death. The risk is that your surviving spouse could change his or her mind and change his or her Will to disinherit your children after you are gone. As much as you may trust each other while you are a couple, things change when a spouse has died and the surviving spouse ‘moves on’. After all, your children are not your spouse’s children and loyalty is often short-lived.
There are other complex issues to be explored in addition to the above. For example, some assets attract significant tax on death such as cottages, stocks and mutual funds in a non-registered account if not being rolled over to a spouse. And probate tax could be significant especially where assets are passing through an estate rather than via joint ownership or beneficiary designations.
If you are in a second marriage and are faced with questions like these, make an appointment to meet with me to discuss your estate planning. Together we will explore your estate planning goals and the options available to develop an estate plan that fits your unique situation.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.
