How do you balance in your Will the desire to ensure that your children from your first marriage still inherit and yet, still allow your estate to benefit your spouse from your second marriage during the rest of his/her life? It's a mouthful, but worth every minute thinking about it before you tie the knot for the second time.
The typical estate plan is to leave all of your assets to the surviving spouse. On the passing of the surviving spouse, the remainder of your assets is split between your children. While this might work in a "traditlonal family where the couple has children together and there are no children from previous relationships, it may not work in a blended family situation. If you remarry, you should re-evaluate your Wills and your estate plan to ensure your intentions will be clear for your new blended family. Careful planning must be done to ensure the needs of any children from a prior relationship are met as well as the needs of the second spouse or partner.
In estate planning, spouses generally create reciprocal Wills where the wishes of the husband and wife are exactly the same – each person leaves the same assets to the same person in the same proportion. For example, if both Dick and Jane have two children each from a previous relationship, they might have Wills that leave everything to the other spouse upon death. On the death of the surviving spouse, then the estate would be divided equally between the four children. In this scenario, if Dick passes away before Jane, there is nothing preventing Jane from changing her Will and leaving the entire estate to her children from her previous relationship. As a result, Dick's children would not receive anything from the estate, which was never his intention.
It goes without saying that in order to prepare an appropriate estate plan, as a blended family, you have to determine who you have to provide for in your Will, what assets you have to leave to various family members and the value of those assets. Whether your estate plan will be simple or more complex will depend on how much wealth you intend to pass on to your family members.
Often second spouses in a blended family situation will appreciate and accept their spouse's intention to share his or her estate among the children from a previous relationship. Spouses in blended families are often quite open with one another about their estate planning objective.
When leaving bequests to family members, you have to determine to whom you have an obligation to provide support. The Succession Law Reform Act (R.S.O, 1990, c. S. 26, section 57) is intended to ensure that surviving dependants are afforded adequate provision for their proper maintenance and support out of the estate of the deceased. A "dependant" is defined by legislation to include: a spouse, or common-law spouse, same sex partner, a parent, child, or sibling of the deceased to whom the deceased was either providing support or was under a legal obligation to provide support immediately before his or her death. "Parent" and "child" are given extended definitions, and can include those holding themselves out as parents (although not a natural or adoptive parent), and can include adult children and grandchildren.
Have you adopted your step-children? Usually people going into a second marriage only adopt step-children if the children are quite young. However,for estate planning purposes, non-adopted step-children have a different legal status than adopted step-children. If you do not make a Will, and your estate is divided among your spouse and your children, the word "children" under the Succession Law Reform Act only includes blood or adopted children, and not step-children.
If you have not made adequate provisions for the proper support of your dependants, then pursuant to Part V of the Succession Law Reform Act, a dependant may initiate proceedings seeking an award from the estate based upon a claim that he or she has not been adequately provided for in your Will.
In a blended family, it might be useful to think about using domestic contracts, spousal trusts or trusts for your children from your previous relationship to structure your estate. This will ensure that your children from your first marriage still inherit and yet your spouse from your second marriage benefits from your assets during the rest of his or her life.
Marriage contracts and cohabitation agreements are types of domestic contracts. Domestic contracts are legal agreements that deal with issues arising when couples live together, marry, separate or die. The primary focus is often on the division of the couple's property, and the amount of spousal support to be paid, if any. In Ontario, domestic contracts are generally respected by the courts provided that:
- they are fair to both people;
- both people know what exactly they are getting into by signing the agreement;
- each person provides details about their finances;
- each person has enough time to properly consider and negotiate the terms of the contract; and,
- both people have received or have the opportunity to receive independent legal advice,
If you are entering into a second marriage, a domestic contract is an option as a means of balancing your wish to preserve your wealth for the children of a previous relationship while also ensuring that your second spouse is well provided for. For example, if Jane owns a business which she intends to pass to her children, Jane's children may enter into a domestic contract with Dick in order to protect the business from any future Family Law Act claims which could jeopardize the health of the company.
What is a trust?
A trust is a relationship where property is held by one party for the benefit of another. A trust is created by a settlor who transfers some or all of his or her property to a trustee. The trustee holds that property for the trust's beneficiaries. An owner placing property into trust turns over part of his or her rights to the property to the trustee which has the effect of separating the property's legal ownership and control from its equitable ownership and benefits. The trustee is given legal title to the trust property, but is obligated to act for the good of the beneficiaries.The beneficiaries receive the benefit or profits from the trust property.
If you want to provide for your spouse for their lifetime, while ensuring that assets are preserved for your children from a previous relationship, then a spousal trust can be included in your Will. A spousal trust will ensure that the surviving spouse receives the income from the investments held by the estate during his or her lifetime. It is also possible to stipulate in the trust that the surviving spouse is entitled to encroach on any capital to ensure that their financial needs are met during his or her lifetime.The remaining capital of the estate will be held in trust until the death of the spouse. After the spouse dies, the remaining assets will be divided amongst the surviving beneficiaries of your estate.
Trust for the children
In the alternative, you could set up a trust for each child. If you have minor children or children who you don't consider to be financially responsible, then you can set up a testamentary trust, through which funds will be held by the trustee until the child reaches any age that you determine.
When your only "substantial asset" is your house
Unlike people who marry very young, seniors often already have some wealth when they get married for a second time. They have often received property through a divorce or when they were widowed and they come into second marriage already owning a home. Let's assume that Jane already owned her house and Dick sold his home and moved in with Jane when they got married and Dick purchased a half interest in Jane's home. In this situation, Dick and Jane would hold title to the house in joint tenancy. If Jane predeceases Dick, Dick would have full ownership of the house, allowing him to do with it as he eases. Jane's wish may have been for her interest in the house to go to her children from a previous relationship. After Jane's death, Dick could decide to honour Jane's wishes or he could decide to change his Will and leave everything to his children from a previous relationship.
A possible way to avoid such an outcome is for Jane to hold title of the home as tenant-in-common with Dick. Upon Jane's death, her interest in the home will pass to her estate and she could stipulate in her Will that her interest in the home be held in a testamentary trust for Dick's use until he either passes away or decides to move. Jane's Will can also stipulate that operating costs associated with the home should be borne by Dick. Jane would have to decide how her estate intends to pay for her share of the cost of any major home repairs that may be required.
The terms of the trust could allow Dick to use some or all of Jane's interest in the home to buy a replacement home for himself. If any portion of Jane's interest was not needed to purchase the new home, then it could be retained in tire trust or distributed to Jane's children. Similarly, upon Dick's death, the net proceeds from the sale representing Jane's interest could be distributed to Jane's children. Assuming that Dick has structured his Will similarly, his interest in the home could be distributed to his children. All of these issues can, and should, be discussed with your lawyer.
Finally, it is important to consider the subject of insurance, RRSP, RRIF and pension designations. These assets pass outside your estate when you name a specific beneficiary. So as part of your estate planning, you need to review all of your beneficiary designations to make sure that they conform to your present needs and wishes. If you new Will refers to these items; it is important that they say the same thing.
Getting married automatically revokes your existing Will. If you made a Will after your divorce to look after your children, that Will was revoked when you re-married. If you are a senior contemplating marriage, please talk to an estate planning lawyer and your accountant about how your second marriage will affect your future finances and lifestyle.
Marcia A. Green is an associate lawyer with the Ottawa law firm of Nelligan O'Brien Payne LLP (www.nelligan.ca) and a member of the Wills and Estates Practice Group.
[This article was originally published in the September 2014 edition of Fifty-Five Plus Magazine.]