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Estate Planning-Children and the Second Marriage
Estate Planning - Children and the Second Marriage
Estate Planning - Children and the Second Marriage
Many spouses rely on joint ownership as their primary estate planning tool. All property is held jointly and the other spouse is the beneficiary of the RRSP or RRIF and Life Insurance. Upon the first to die, sole ownership of joint property, RRSP/RRIF, and Life Insurance benefits moves to the surviving spouse. The delays and costs associated with probating a Will are avoided because there is no estate. The surviving spouse’s Will distributes whatever is left after the surviving spouse dies.
The mutual Will is often the primary estate planning document for spouses. It usually names the surviving spouse as the sole executor and beneficiary of the entire estate upon the first to die. Upon the death of the surviving spouse, the estate then passes to the children and step children. Children and step children are typically excluded from the initial distribution. If this estate planning regime is used in a second marriage environment, it can have potentially devastating consequences for the children of the first marriage or relationship if their parent is the first to die.
Step children can be intentionally or unintentionally disinherited by the surviving step-parent or second spouse. This could occur by the surviving spouse squandering, gifting or otherwise exhausting the estate while alive, changing his or her Will to exclude the step children, re-marrying (which revokes a Will) and not reinstating the original estate plan, or by a combination of these things. Step-children will end up inheriting little or nothing and have no legal recourse if nothing was done to protect them or if they do not immediately take legal action against their parent's estate to change the Will.
Solutions to the problem exist, and involve balancing competing interests. Relevant considerations include the size of the estate, taxation issues, expense, financial and lifestyle needs of the surviving spouse, financial autonomy of the surviving spouse, influence the children during the surviving spouse’s lifetime, among others. Tools to deal with this situation include:
Gifting property to children when the parent is alive;
Avoiding the joint property regime and including children as initial beneficiaries
Placing property, insurance proceeds, etc. in a spousal trust or providing the surviving spouse with a life estate in specific assets (i.e. a home, etc.);
Utilizing a pre-nuptial or mutual wills agreement to require the surviving spouse to maintain a specific estate planning regime including the step-children and to preserve the plan upon re-marriage; and/or
Utilizing a family trust or a family holding company in an estate plan.
You should obtaining input and advice from professionals who can help you find and implement the best solution for your family’s situation, including your lawyer, tax accountant, insurance and investment specialists, etc. If you wait too long, death or incapacity may over take you and it will be too late to protect your family from future conflict, disappointment, and even estate-exhausting litigation.
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