By Ray Turchansky
EDMONTON – Years ago a reader approached me in the wake of his wife’s death.
It had been the second marriage for both of them and under terms of the wife’s will, children from her first marriage were to receive inheritances. But the mother had worried that while her daughter would manage an inheritance wisely, her adult son would waste it on cars and drugs. The widower asked if anything could be done to prevent the waste.
Because the mother had already died, there was little recourse. But plenty could have been done before death, such as establishing a trust so that assets going to the son would be issued in stages over a period of time, likely at the trustee’s discretion.
Divorce and remarriage have serious effects on estate planning, especially in dealing with blended families involving children from previous and current marriages.
“I find that things that are incredibly obvious have never been considered,” says David Chalmers, a financial adviser with Nicola Wealth Management in Vancouver, himself in a second marriage. “When one is marrying for the second time around, your mind is on romance, and those sorts of things.”
When same-sex marriages and common-law relationships involving what Alberta calls adult interdependent partners are considered, there exists a quagmire of regulations that vary among provinces and present a minefield for estate lawyers and planners.
“As soon as you get children from a prior spouse, or blended families, estate planning becomes very complicated,” Chalmers says. “There are more hands reaching out for the money than there were before. It isn’t going to change the decision about who we are going to marry, but making intentions clear is the main thing.”
Until recently, all venues in Canada save for Quebec held that marriage or remarriage cancelled previous wills, except those made in contemplation of marriage, while divorce did not revoke a will.
But in recent years, Alberta and British Columbia have revamped their Wills and Succession Acts, joining Quebec in ruling that marriage, or an adult interdependent partnership, no longer revokes previous wills. Conversely, while divorce and separation in Alberta did not revoke an existing will, Alberta now joins most of Canada in ruling that divorce means the former spouse or partner will not receive any gift under the will. As for separation, it does not affect a will among married people, but a one-year separation among common-law partners generally revokes a will. One red flag: these changes do not alter the designation of a former spouse or partner listed as beneficiary of RRSPs, RRIFs, other investments, pensions or life insurance.
Chalmers gives the example of John and wife Janet, both married for the second time, with Janet being five years younger than John’s first wife Mary.
“If the John and Janet marriage lasts a long time, he may leave his money to her, and she may or may not give anything to his children, because she may have children of her own. John can leave money to Janet in a trust, where she gets the income, while the capital goes to his children upon her death. Or we can be tax efficient and leave registered assets to her tax-free, while leaving non-registered assets to his children.”
The wise course is to figure out beforehand how much the assets are worth, who will get what, and when.
“If children inherited from the death of their first mother, there’s nothing wrong in them waiting to inherit again until the death of the second mother.”
After deciding how an estate will be handled, it is key to keep all parties informed, especially as proposed government changes to the taxation of testamentary trusts and insurance products can cause a testator to make changes in how those assets are handled in a will.
“At the very least, have a will in place saying what you want to happen. In many cases the thinking is ‘there isn’t enough money to take care of my new wife and my children, so I guess I’ll leave it all to my new wife.’ If that is the case, it might be better to tell the children now, instead of having litigation after the fact.”
Chalmers advises people, particularly those having had multiple relationships and especially those with children from each one, to get advice from a lawyer, estate planner or financial adviser who is well-versed in the areas of wills, estate planning, trusts and taxation.