Life Changes (er, Marriage) Require Estate Planning Changes
PART I: George's Story
The Background Story
Remember Bill and Susan from our last blog? They have three children, Alexandra, Samantha and Benjamin.
Bill and Susan’s youngest child, Ben, is in a band with three high school friends, John, Ringo and George. When they released their first single to incredible popularity several years ago, they were inundated with well-meaning advice from family and friends to get their finances in order.
This advice went in one ear and out the other for Ben and John, who spent every waking moment recording, writing, and performing.
In a surge of uncharacteristic adulting behaviour, Ringo and George each bought their first house and obtained a financial advisor, who helped them establish life insurance, RRSPs and TFSAs and counselled them to hire a lawyer to write their wills and get their power of attorney documents in place. They both did this, and being single, named their parents the beneficiaries of their life insurance, RRSPs and TFSAs, executors and beneficiaries of their wills as well as their attorneys for personal care and property.
A few years later, George met and married Sommar. He didn’t turn his mind to his legal documents, as overtaken as he was with Sommar’s beauty, the excitement of the wedding plans and very soon afterwards, the rigours of parenting triplets, as well as his ever demanding musical career.
When the triplets were just two years old, John, Ringo and George were on a flight back from a musical tour throughout Europe when their plane crashed and, tragically they all died. Susan and Bill, although devastated, were so grateful that Ben had stayed behind to visit his British grandmother for a week.
What happened to George’s estate? Did his will have any legal effect?
George’s marriage revoked his will, such that it had no legal effect.
However, marriage did not revoke his beneficiary designations, so George’s life insurance, RRSP and TFSA flowed directly to his parents.
Since the will was revoked by marriage, there was no executor, no specific gifts to Sommar and the children, and no trusts for the children.
Who could act as executor?
Sommar could make a court application to enable her to deal with the assets as estate administrator. As spouse of the deceased, Sommar would be first in line to apply to the court to administer George’s estate. But it may not be in Sommar’s best interest to apply, as we will see below.
The Children’s Lawyer would be served with the application and would maintain involvement until such time as they were satisfied that the children’s interests were protected.
How are the assets distributed?
The assets that would have fallen under his will, including his house, personal effects and non-registered assets, were instead subject to an intestacy. This occurs when someone has no will. The law sets out the formula for intestacies.
When we apply the intestacy formula to George’s surviving spouse and three children, Sommar would be entitled to the preferential share, which is currently first $200,000 of an intestate estate. Given there are three kids, Sommar would receive a further 1/3 of the remainder and George’s kids would receive 2/3 of the remainder in equal shares.
As for the triplet’s share, without a will containing trust terms for the minors, their inheritance would be paid into court and their respective shares would be released from the court to them at age 18. Sommar would need to make regular applications to the court to receive portions of these funds to assist in paying for their care.
The life insurance, RRSPs and TFSA together totaled $2M, which went directly to George’s parents, who never approved of Sommar as an ideal partner for George, or mother to their grandchildren, so they have said they will hold the remainder of the money in trust for the triplets on an informal basis, after they pay off their own $1.5M debt.
Are there any alternatives to this unfair scenario?
Given the large amount of money flowing to George’s parents as well as the expense and inconvenience of regular court applications to obtain funds to support her children, Sommar’s lawyer advised that she make a dependant support relief claim to the court within the permitted timeframe, rather than accepting the intestacy formula. Her lawyer advised that the court has jurisdiction to claw back beneficiary designated assets, and Sommar could apply to have part or all of the life insurance, RRSP, and TFSA ordered payable her by the court and her children if she could make a convincing argument for the appropriateness of this order. The law sets out a lengthy set of criteria by which it establishes such an entitlement.
In this case, Sommar was a stay-at-home mother of triplets who had fallen behind in her career to care for the children given George’s demanding career with lengthy absences. This among other factors may place her in good stead to obtain an award of dependant support relief.
If Sommar made a dependant support relief claim, she could not apply for administration of the estate, but would need a third-party administrator because the executor cannot make a claim against an estate under his or her administration.
Stay tuned for Part II: Ringo’s Story, What happens when the estate plan is changed in step with life changes?