There are some important milestones in life when it is imperative for a person to update their will. A later-in-life second marriage certainly is one of them.
If your first marriage ended in divorce, the provisions in your will that refer to your spouse are automatically revoked, as provided by s. 17(2) of the Succession Law Reform Act. Your former spouse will no longer be your executor or trustee or even a beneficiary of your estate unless there is an explicit reference in your will to this.
Keep in mind the same is not true for beneficiary designations relating to assets, such as RRSPs, RRIFs, life insurance policies and pensions. Those will still flow to the individual named in those plans unless you take steps to name new beneficiaries.
If you are separated but not divorced, your will remains entirely valid upon death, in the absence of a separation agreement delineating a married spouse’s entitlement. Therefore, any bequests previously made by a spouse to a surviving spouse remain valid. This situation is not ideal either, since you want to avoid having assets flowing to a person when you are no longer involved with them.
A complicating factor with later-in-life marriages is that they can bring together children from previous relationships. From an estate-planning perspective, this can create complexities.
Perhaps the children from a first relationship resent a step-parent and feel that their step-siblings are now unfairly in line for the estate. Conversely, a step-parent may welcome a spouse’s child as their own or the couple may have a child of their own or adopt one. Where does that leave the other children from previous marriages from an estate distribution perspective?
Aside from the financial implications of having your family members squabble over your estate, there is an emotional component to consider. Children may feel slighted if they do not inherit what they consider to be their fair portion of the estate, even if the intention is that the surviving spouse, in turn, leaves assets to the children upon their death. This approach leaves room for uncertainty, which is the last thing you want to create when drawing up an estate plan.
A common practice for estate planning when it comes to second marriages is to provide a “life estate” to the surviving spouse and a “gift over” to the testator’s children. If the father were to die in this scenario, the matrimonial home and all of his money would be held in trust for his widow for life. She could then make use of these assets but would not have the right to gift them to beneficiaries of her own estate, as the assets would be given to his children upon her death.
Almost any blended-family situation creates tension that can explode into estate litigation if the will is not carefully drafted to address the family’s circumstances. It is important to be clear about your wishes with the lawyer revising your estate plan, taking into account how everyone in your blended family will react to the arrangement.
To sum up, it is crucial to seek the advice of legal counsel about wills before entering into a late-life marriage. Those that do will discover estate planning will be much different than with a first marriage when they had fewer assets and beneficiaries.
Thanks for reading … have a great day,
Yesterday I blogged about an Alberta case where, although it was found that a RRIF belonged to a designated beneficiary and was not subject to application of the resulting trust principle established in Pecore, the beneficiary was required to personally bear the RRIF tax obligation on various grounds, including that (i) it was “manifestly unfair” that the Estate pay the tax as such result would preclude certain gifts in the Will from being made, (ii) the designated beneficiary would otherwise be unjustly enriched and (iii) the Court inferred that the testator was under the mistaken impression that the tax obligation would be paid out of his estate assets.
Given the provisions of our governing statutes and their interpretation by the Courts, in Ontario we would not likely see this type of outcome. The applicable legislation is:
- Subsection 2(1) of the Estates Administration Act (“EAA”)– it provides that the designation of a beneficiary of a fund is a testamentary disposition, such that the fund devolves to the estate and is subject to the claims of creditors.
- Section 53 of the Succession Law Reform Act (“SLRA”) – it provides that if a person is designated as the beneficiary of a plan, the person administrating the plan can pay the full proceeds to the named beneficiary. The administrator is discharged from any further obligation with respect to payment, and the named beneficiary may enforce payment of the benefit.
Section 53 has been interpreted by the Ontario Court of Appeal as an exception for RRSPs (and other such funds) from s. 2(1) of the EAA such that these types of assets do not form part of an estate but instead devolve directly to the designated beneficiary: see Amherst Crane Rentals v Perring, 2004 CanLII 18104 (ON CA).
In Amherst, the appellant was a creditor of the deceased. The respondent was the deceased’s widow and designated beneficiary of RRSP funds. The estate was insolvent, and the creditor sought to obtain payment of the debt owed from the proceeds of the RRSPs. The application Judge held that the RRSPs devolve directly to the designated beneficiary – the creditor had no right to seek repayment of the debt from the proceeds of the RRSPs, even though the estate was unable to pay its debts. The decision was appealed, and upheld by the Court of Appeal for Ontario.
So in Ontario it would appear the only way to get assets such as RRSPs and RRIFs clawed back into an estate is through the provisions of section 72 of the SLRA.
Thanks for reading and have a great weekend,
Today on Hull on Estates, Paul Trudelle and Stuart Clark discuss the recent case of Kiperchuk v. The Queen, and whether an RRSP that passes to a designated beneficiary on death is available to CRA to satisfy the deceased’s tax debt.
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In Kiperchuk v. The Queen, 2013 TCC 60 (CanLII), the Tax Court of Canada held that a spouse who received RRSP benefits upon her spouse’s death was not liable to pay the deceased’s unpaid tax debt arising prior to his death.
There, deceased designated his wife as the beneficiary of his RRSP. The couple subsequently separated, and divorce proceedings were commenced. However, the designation remained in place. Prior to his death, the deceased incurred significant tax debts, which were unpaid as at the time of his death. His estate was insufficient to pay the tax debts. CRA sought to find the wife liable for the unpaid taxes. It relied on s. 160 of the Income Tax Act which, in effect, imposes joint liability for unpaid taxes (to a certain extent) where a tax payer transfers property to a spouse, child or “person with whom the person was not dealing at arm’s length” for less than fair market value.
The Court refused to find the wife liable. Although it had no difficulty in finding that there was, in fact, a transfer, the transfer took place at the time of death. As of that date, the status of marriage ended due to death, and the wife was, therefore, no longer a spouse, and further, “nor was she a person with whom the transferor was not dealing at arm’s length at the time of the transfer”.
The Court may have been splitting hairs here. The transfer took effect on the moment of death, and as of that moment, according to the reasoning, the parties were no longer spouses: the husband “was not related to the appellant by marriage at the time she became entitled to the RRSP”. “The status of marriage is ended by death… .”
Further, the Court does not give much explanation as to why it considered the transfer to be at arm’s length.
Finally, the limited application of the case should be noted. The case dealt only with tax liability arising before death: a beneficiary of an RRSP is liable for unpaid income tax on the RRSP proceeds where the estate is unable to pay: s. 160.2(1) of the Income Tax Act.
Thank you for reading.
Listen to Dependant Relief.
This week on Hull on Estates, Natalia Angelini and Craig Vander Zee discuss dependant relief and reference a variety of cases that utilized the Succession Law Reform Act.
Listen to Applying for Probate
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about the applying for probate. They discuss some of the ways that estate administrators can simplify the process.