PART II: Ringo’s Story - Estate Planning Done Well
This story shows, in contrast to George’s story, how simple estate planning can help create a less stressful and more harmonious outcome for loved ones.
Ringo and Maureen had been married for 6 years at the time of the plane crash. They had two boys in day care and a baby girl at home.
Ringo's Estate Plan
After the birth of the first child, Ringo realized his pre-marriage will and power of attorney documents were outdated. He consulted his advisors and considered his options. Like George, Ringo was young with significant assets and responsibilities.
He was advised that a trust company may be better suited than his spouse to carry the burden of his estate administration. He agreed, but Maureen wanted to maintain involvement so his will stipulated that the trust company must consult her with regards to major decisions.
Unlike George, Ringo removed his parents as beneficiaries of his life insurance, RRSP and TFSA. He named Maureen the sole beneficiary of his RRSP so that she could benefit from delayed taxation with a spousal rollover and he also designated her the successor holder of his TFSA so that she could effectively double the contribution room in her TFSA.
Maureen and Ringo owned their home jointly with right of survivorship, meaning that on the death of the first spouse, the survivor would own it 100%.
Rather than an outright gift to Maureen of the life insurance and residue of his estate, Ringo wanted more control. As such his will further provided for the establishment of a life insurance trust, a spousal trust for Maureen and a family trust for Maureen and the kids (with partial distributions to the kids at milestone ages and terminating at age 40) such that the trustees could allocate assets to each trust based on tax advice and the forecasted needs of his family members at the time of death. Since the life insurance trust was established correctly, it fell outside the grasp of probate, but still allowed Ringo to influence what happened to the proceeds long after his death.
Ringo saw the benefit of the trust strategy rather than an outright gift of the estate to Maureen because it was not unlikely that she’d re-marry. He did not want his sizeable estate to be vulnerable to a new spouse or future children. Rather he wanted ensure Maureen’s financial well-being while simultaneously securing his children’s long-term security.
How did Maureen and her children experience the estate administration compared to Sommar and her children?
Unlike Sommar, Maureen was not forced to make stressful decisions immediately, spend years dealing with the legal system to make a contentious dependant support relief claim against the estate and against her in-laws. Instead, Maureen was able to focus her time and attention on her own grief and on helping the children cope during the tragic aftermath of the plane crash while the trust company executor carried the burden of the estate administration. The executor obtained the usual minor assistance from a lawyer and accountant and consulted Maureen when making major decisions.
Unlike Sommar’s children, whose financial future was uncertain because they would have to rely on Sommar and her life decisions, despite the fact that the Children’s Lawyer may have taken a more active approach to create some financial structure for the children, it may not have been what George would have chosen and may create an uncomfortable intrusion for Sommar with heavy administration requirements. There were no trusts in the will for them, whereas Maureen’s children had trusts in place to guarantee their long-term well-being. The Children’s Lawyer was involved only peripherally to ensure the children’s trusts were properly established in a way that honoured the terms of the will and protected the children’s long-term interests in the trusts.
The executor established the spouse trust for Maureen, entitling her to all the income from the spouse trust and such amounts of the capital as was necessary for maintaining the standard of life she had enjoyed with Ringo. She did not experience the panic over finances or disruption that Sommar most certainly did.
While an estate administration can be a difficult task, it is much easier with the legal and moral guidance provided in an updated will and with proper beneficiary designations in place. Fortunately for Maureen, she was able to maintain harmonious relationships with her in-laws and endured far less stress and heartache than Sommar.
*Key Points for Ringo’s Estate: Planning Done Well*
- Updated beneficiary designations lead to a smooth tax-efficient transition of wealth.
- Updated will ensures thoughtful transition of wealth.
- Well drafted trusts provide long term financial stability for spouse and kids and protects assets from a second marriage.
- Professional executor assumes the liability of estate administration takes stress away from family members.
- Low need for legal involvement / low legal fees.
*Key Points for George’s Estate*
- Old beneficiary designations to parents, meaning half of registered plans go to government in tax upon death (Also family disharmony with Sommar's court claim against in-laws to make assets available to her and the kids)
- No will meant an intestacy, which meant less of the estate went to the spouse without court involvement to make a dependant support relief claim.
- Children’s share went to Accountant of the Superior Court of Justice for management meaning regular applications by Sommar for cash.
- High involvement of Children’s Lawyer.
- High need for legal involvement / high on-going legal fees.
Next, we will look at the scenario of what happens when a common law spouse dies without a will in PART III: John’s Story.