The Problem

Our client has two adult children from his first marriage. He also has two more children with his second wife.

When he married, he owned a home that was worth about $500,000. On marrying his second wife, he transferred the home into their joint names. Our client has $200,000 in a registered retirement savings plan (RRSP) and had named the children of the prior marriage as equal beneficiaries.

He also has a life insurance policy for $500,000 and has named his second wife as the beneficiary. Our client wants to ensure that he makes fair provision for his second family and also for the children of the prior relationship.  

Our client’s second wife and each of his children may qualify as “dependants” at law. He is legally obliged to make fair provision for his dependants. If he fails to do so, one or more of his dependants may sue his estate after he dies, leading to delay in the administration of his estate and added cost, expense, and uncertainty.

The house is held jointly by right of survivorship and its value will pass to his second wife when he dies. The second wife may get the bulk of his estate and there won’t be enough value in his estate to provide for all of his dependants. 

He is concerned that if he leaves more assets to his children, his second wife may sue his estate, because she has spousal rights to an equalization of family property.

If the children remain beneficiaries of the RRSP, his estate will have to pay the income tax consequences and assets forming his estate may have to be used for that purpose.

Our Approach

We reorganized the beneficiary designations on the RRSP to name his second wife as the beneficiary, so that the RRSP passes to her on a tax-deferred basis when he dies. As a consequence of this decision, his estate will not have to fund the tax obligation that would have existed if his children remained the designated beneficiaries.

He changed the beneficiary designation on his insurance policy, allocating a portion of the proceeds to his wife and a portion to his children of the first marriage. These allocations will have no adverse income tax consequences when he dies.

With the cooperation of his second wife, they restructured the ownership arrangement for the home to hold it jointly as tenants in common and in their wills they gave each other a life interest in his or her share. This will ensure that each of them has a place to live when one of them dies.

The Result

When the home is sold, the proceeds will be divided between the surviving spouse and the estate of the deceased spouse. Our client completed a Will in which he allocated his share of the proceeds among his wife and children. 

Our client and his second wife also completed a marriage contract confirming that these arrangements met their needs and confirming that each would not make claims against the other’s estate when each of them dies.