dividing
times
Don’t neglect estate planning strategies
for the separated spouse.
By Barry S. Corbin
A
marital breakdown is an
obvious trigger for an estate planning
review since many items need to be
reviewed, if not changed. Let’s walk
through a hypothetical situation where
a legally married couple, Robert and
Emily, living in Ontario, have separated and you are helping Emily with her
estate plan.
Wills
In most Canadian jurisdictions, divorce results in the revocation of a
spouse’s appointment as executor and
the forfeiture of beneficial entitlements
under the other spouse’s will. (Newfoundland is a notable exception.)
As a general rule, separation
will not, in and of itself, affect one
spouse’s entitlement to inherit under
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the other spouse’s will. (In Saskatchewan and Nova Scotia, legislation says
a common-law couple separated for
24 months will result in revocation of
each partner’s entitlement to inherit
under the other’s will. In British Columbia, a “judicial separation”—no
longer available in most other Canadian jurisdictions—will have the same
effect as a divorce.)
For this reason, Emily needs to
consider whether her will should be
revised. Like many separated spouses,
Emily may be resistant to doing so,
wanting to see where the chips fall
as a result of the matrimonial property split. (If Emily were to die unexpectedly, one can imagine Robert’s
mixed feelings: happiness at the windfall but resentment in having wasted
a substantial sum on a matrimonial
lawyer fighting over the property split.)
Obvious changes might include
eliminating Robert as a named beneficiary and as executor. However, there
are some other will provisions that
warrant consideration:
• Does the dispositive scheme preclude
Robert’s sharing under the intestate
succession rules where part of the
estate remains when the last beneficiary dies? This could happen, for
example, if Emily and her children
die together in an accident and the
will contains no “gift over” provision.
• Should there be an appointment
of a custodian for any minor child
(subject to any rights Robert may
have)?
www.advisor.ca
• Should Robert retain the role of
trustee over trusts established for
the couple’s children? If not, should
the trustees be directed to make
payments out of any such trust to
someone other than Robert, for the
benefit of a minor child?
Powers of Attorney
If Emily has appointed Robert as her
attorney, either for property or personal care, she will likely want to revoke that appointment and appoint
someone else to the role(s). Revocation will rarely involve a mere Donald
Trump-style oral firing. In Ontario, for
example, it requires a document signed
with the same witnessing formalities
that apply to the making of a power
of attorney.
Trusts
If Emily previously established an inter
vivos trust in which Robert has a role,
either as a beneficiary or as a trustee
(whether original or substituted), examine the terms of the trust to determine whether she has the authority to
amend them or to exercise a discretionary power to remove Robert from any
such role.
(An “in trust” account set up with
a financial institution and appointing
Robert as trustee will be problematic.
There is likely no documentation giving Emily the right to remove him as a
trustee over that account.)
Jointly Owned Properties
As is typical of married couples, Robert and Emily are “joint tenant” owners of both their primary residence and
cottage. A joint tenancy carries with it
a right of survivorship: on the death
of either joint owner, the other joint
owner becomes the sole owner of the
property. The deceased owner’s halfwww.advisor.ca
interest in each property would not
pass through his or her estate, and
would therefore be unaffected by the
deceased’s will.
Emily may decide to “sever” either
or both of the joint tenancies; that is,
convert it (or them) to a “tenancy in
common.” In a tenancy in common,
the death of one joint owner does not
benefit the other joint owner, who continues to own an undivided one-half
interest in the property, together with
the estate of the deceased joint owner.
Of course, severing the joint tenancy is
a double-edged sword: If Robert died
first, Emily would become the sole
owner of both properties. She could
easily sever the joint tenancy in either
property by conveying her interest in
it to herself. (In Ontario, it has been
held that a spouse can unilaterally sever
a joint tenancy even where it involves a
matrimonial home.)
Joint bank accounts can be problematic. While Emily might be able
to empty out a joint account without
Robert’s knowledge, it could bring a
harsh response from the court in a subsequent matrimonial proceeding.
Life Insurance
Review Emily’s life insurance arrangements, so Robert does not receive the
insurance proceeds on her death—
either as beneficiary or as a trustee for
their children. To have the authority to
change those arrangements, Emily must
be the “insured.” For individual insurance contracts, she will have that status
if she entered into the contract with
the insurer (or if the contract was subsequently assigned to her by the person
who entered into that contract).
For group contracts, she must be a
member of the group for whom the
coverage was acquired. (If Emily has
coverage under an affinity group life
contract by virtue of Robert’s membership in the group, determining
whether Emily is the insured with respect to that coverage may take careful
investigation.)
If a private corporation owns insurance on her life, the corporation must
sign the document. If Emily and Robert are joint owners of the contract, she
will not be able to change the beneficiary without Robert’s concurrence. As
there are a number of important statutory rules for changing a beneficiary
designation, Emily would do well to
consult with a knowledgeable professional advisor.
Registered Plans
Look at the beneficiary designations
on Emily’s RRSPs or RRIFs. As with
life insurance, there are formalities for
making a change to a beneficiary designation and Emily should get appropriate professional advice in this regard.
She will have to recognize, of course,
that a beneficiary designation in Robert’s favour can save income tax on her
terminal return, while alternative beneficiary designations may not offer the
same tax benefits.
Most of these issues can be addressed
by Emily unilaterally. Ultimately, there
will be either a negotiated settlement or
a court order that may have an impact
on her ownership of various assets and
the steps she has taken to protect them.
In the meantime, you can help Emily
consider various short-term measures
to prevent unwanted outcomes in the
event of her untimely death.
Barry S. Corbin is a certified specialist (estates
and law) and practises through Corbin Estates
Trusts Law Professional Corp. in the areas of
income tax and estate planning, estate administration and the mediation of estate disputes.
[email protected]
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