What is the second marriage problem? If a couple marry or live common law a second or even a third time, how do each of them ensure that children from a previous marriage or relationship inherit but the second spouse isn’t left destitute or worse yet when the first spouse dies.
Dr. Samuel Johnson famously remarked that remarrying was “the triumph of hope over experience.” Whether marrying again or ‘living together’ in a subsequent relationship, at the beginning hope is usually high that this one will last forever. That’s the ideal time to talk about the problem … “How do we take care of each other if one of us dies and yet ensure that our own children inherit from us?”.
When I meet at my Stittsville-Kanata office with couples facing the second marriage problem, we explore a range of options. Couples soon realize that there is no perfect solution. Options can vary a great deal depending upon the type of assets the couple own and how they own them. For example, most couples prefer to leave RRSPs to a surviving spouse because the immediate tax hit on the first spouse’s death can be significant if the RRSP is left to someone other than a spouse. Here are some ideas to get you started.
1. If you are young and healthy, consider taking out insurance on your life that will pay out to your children if you die. If you have health issues or if you are older, this may not be an affordable option.
2. If you have significant assets, divide your estate between your children and your spouse immediately on your death. To make this option work, you must be the sole owner of the assets that you want to leave to your children.
3. If you own enough assets in your name alone, another option to consider is a spousal trust. This could allow the survivor spouse to receive the income or earnings of the trust while preserving all or most of the capital (essentially the assets the trust started with) for your children after the second spouse dies.
4. For many couples, their home is the most valuable asset they own. If you and your spouse own your home as joint tenants with right of survivorship (JTWROS), consider changing the title to tenants in common (TIC). In each of your wills, you leave your spouse a life interest in your share of the home. As a result, on the first spouse’s death the ownership of the home is shared between the survivor spouse and the deceased spouse’s estate. The survivor spouse can live there as long as she or he wants. This option can also work if you are the sole owner of your home and leave a life interest in your home to your spouse. After both spouses have died or if the survivor spouse no longer needs the house and sells it, the sale proceeds of the house are divided between the survivor spouse (or his or her estate) and the deceased spouse’s estate. The sale proceeds are then distributed to the beneficiaries named in each spouse’s will.
The downside to options 3 and 4 is that the children of the first spouse to die may have to wait a while to receive their inheritance.
The options outlined here are by no means exhaustive. Email [email protected] or call 613.836.9915 to make an appointment to meet with me at my Ottawa law office. A careful review of your situation and a thorough discussion of the options will help you find the best option for you and your loved ones.
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.