Protecting Your Children’s Inheritance When in a Second Marriage
Second marriages are becoming more and more common in today’s society. In such marital situations, it is typical for the spouses to have their own children from a previous relationship. Although each spouse may want to ensure the surviving spouse is looked after upon one of their deaths, their more primary concern is usually ensuring that the majority of their assets pass to their own respective children. It is important that you understand your legal rights and options in relation to your spouse’s estate when in such second marriage situations.
In Ontario, if you have a Will, your Will is automatically revoked when you marry, and again when you remarry, so you should always have a new Will drafted upon your second marriage. Also, the death of a spouse immediately triggers Section 6 of the Ontario Family Law Act (FLA), which allows for an “election” by the surviving spouse concerning how he or she plans to take from the estate of the deceased spouse. Within a period of six months, the surviving spouse may elect to:
Follow the terms and conditions of the deceased spouse’s Will;
If there is no Will, follow the rules of intestacy/partial intestacy; or
Receive an equalization payment under Section 5 of the FLA.
Given these options, even if the deceased spouse did not include the surviving spouse in his/her Will, the surviving spouse may still benefit from the deceased spouse’s estate by electing to receive an equalization payment under section 5 of the FLA. By doing so, the property the deceased spouse thought would be passing to his/her own children from a previous relationship may, in effect, be significantly reduced by this equalization payment to the surviving spouse. However, there are legal steps that you can take, while alive and mentally capable, to better protect your biological children’s inheritance from unintentionally going into the hands of your new spouse upon your death.
An effective strategy that can offer such protection is ensuring that high-valued property does not fall into your estate upon your death through the use of Will substitutes. Will substitutes are alternative ways of receiving property after the death of a spouse that avoid the need for disposing of such property via a Will or the laws of intestacy. Common Will substitutes include joint ownership of property (e.g., joint bank accounts, jointly held real estate), and designating beneficiaries on products like RRSPs, TFSAs, pensions, life insurance proceeds, and other death-related benefits. If you jointly own such property with your biological children, or designate them as the beneficiaries on such products, upon your death this property would not form part of your estate and may not be vulnerable to your surviving spouse’s FLA claims. Still, depending on the relationship between you and your spouse, any property inherited by right of survivorship (i.e., in cases of joint tenancy), such as the matrimonial home or joint bank accounts, could be disputed and a court could decide that you hold the portion of the inherited property through survivorship in trust for the estate or the surviving spouse.
Sometimes it would be best to have a forthright discussion with your second spouse about your intentions concerning your estate and draft a mutual wills agreement. A mutual will agreement is when spouses make mirror Wills, but do so pursuant to a binding agreement to dispose of their combined assets in an identical manner, regardless of who predeceases whom. Not only do the Wills need to have reciprocal terms, but there must also be a binding legal contract between the spouses that the survivor of them will not be permitted to revoke their Will after the first spouse has died.
Some other techniques to protect your children’s inheritance from a new spouse could involve the use of trusts, gifting assets while you are alive, holding family property as tenants in common, or entering into a domestic contract (i.e., a pre- or post-nuptial agreement) with your spouse.
Although nothing will be 100% effective in preventing your surviving spouse from contesting your Will or making a spousal support claim, there are a variety of methods available that could offer some protection to your property and estate if you have these concerns. Of course, each relationship and spousal intention must be analyzed on a case-by-case basis and the legal advice tailored to each unique circumstance. The complexities involved when dealing with property rights, estate and family laws for blended families must be carefully considered by legal professionals who are competent in such areas of law.