An estate plan needs to be tailored to the specific circumstances of the individual for whom it is created. There is definitely no ‘one size fits all’ in the world of estate planning! Some of the most complicated situations are those involving second marriages (or common law relationships), particularly where each partner has children from previous relationships and assets in his or her own name as well as assets owned jointly by the two of them.
We find that spouses often want an estate plan that considers the financial needs of the surviving spouse as well as ensuring his or her own children benefit. For example, John and Betty were married before. John’s marriage ended in divorce while Betty’s first husband died after a brief illness. John and Betty live in a common law relationship in a home that they purchased together. Each has a pension, an RRSP, and an investment account in his or her own name. John has two children from a prior marriage while Betty has one.
John and Betty want to ensure the last surviving spouse can continue living in the home that they share and which they jointly own as tenants in common (meaning they each own a divided one-half interest in the house). However, they feel that each of them has sufficient assets and pensions and will not need anything else from each other. As a result, when one spouse dies, except for the house, all other assets are to go to that spouse’s own children. So, how do they accomplish this and what are some of the issues they need to consider?
With respect to the home, John and Betty could include a ‘life interest’ for the other in his or her Will. The result would be that when one spouse dies, the surviving spouse would have the right to remain living in the home until death or until the home was no longer needed. At that point, it could be sold and each of their child(ren) could inherit their parent’s share of the sale proceeds.
John and Betty want all other assets to go to directly to their own child/children on their death. For some assets, this may mean naming the children as beneficiaries. If this is done, there is no probate payable for the asset; however, there are other considerations. If an RRSP is paid to a child named as a beneficiary, the estate must pay the income taxes on the RRSP. If the beneficiary of the RRSP is also the sole beneficiary of the estate, it may not make much difference if the RRSP is payable to the child or the estate. The net result is the same except that probate fees are payable if the estate is the beneficiary. However, if the RRSP beneficiary is different from the beneficiary of the estate, the results will be very different. In other words, the beneficiary of the estate will pay the taxes while the RRSP beneficiary will receive the entire RRSP payout.
Because John and Betty are not leaving any assets to each other, other than possibly a life interest in the home, they need to consider whether the surviving spouse might have a support claim against the deceased’s estate. This might be the case if the deceased spouse was wealthier than the surviving spouse and there is no provision for spousal support.
These are but a few of the many considerations John and Betty must address in creating their estate plan. In developing your estate plan, ensure you consult with a professional who can advise you as to all the factors that you should be considering. Don’t settle for a ‘one size fits all’ approach that doesn’t take into account all that makes you and your family unique!
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.
