Rules change to reflect new families

Families come in all shapes and sizes: traditional couples with children, widows or widowers living on their own, couples of opposite sex living in common-law relationships, and common-law partners of the same sex. Today, all such households qualify as units. And every family has its own special concerns when it comes to financial and estate planning. For the more than 34,000 same-sex common-law couples in Canada counted by the 2001 census, changing tax rules could affect financial and estate planning.

The annual tax return
When you filed your income tax return with Canada Customs and Revenue Agency (CCRA) earlier this year, you may have noticed that common-law partners now include couples of the opposite or same sex. This relatively new definition (it applies since the 2001 tax year) means that same-sex couples now follow the same tax rules as common-law couples of the opposite sex, including the opportunities to: make contributions to a spousal RRSP on behalf of their partner; claim the spousal personal tax credit; and transfer certain personal tax credits, including the dividend tax credit, age and pension income amount, disability amount, and ttion and education amounts.

Retirement planning
Among the recent key changes to rules governing pension plans is the entitlement of same-sex partners to survivor pension benefits. Nova Scotia was one of the first provinces to extend pension plan benefits to same-sex couples in 1998 and, in jurisdictions across Canada, a number of unions have lobbied successfully to update employer pension plans similarly.

In 2000, the government agreed to allow same-sex survivors eligibility to survivor’s pensions under the Canada Pension Plan (CPP) if their partner died on or after Jan. 1, 1998. Be aware of an ongoing class action lawsuit which, if successful, will enable eligible survivors of common-law partners who died between April 17, 1985 and Jan. 1, 1998 to obtain similar concessions. Now, unless he or she opted out before the end of July 2003, every person and the estate of every deceased person who was in a same-sex common-law relationship in which a CPP-entitled partner died between these two dates and who has not received a CPP survivor’s pension is automatically included in the class.

Estate planning
While the rules are defined clearly for married couples, the implications for the breakdown of common-law relationships — death for married couples is considered a dissolution — are more problematic. In general, few provincial intestate or succession laws actually work to the benefit of partners of the same — or opposite — sex. However, recent court rulings on support payments for couples dissolving a same-sex relationship indicate this is changing, albeit slowly. Also, there have been changes in the definition of common-law partner, which may affect the final tax bill. Notably, common-law couples of the same sex may now defer taxes on death by naming their partners as beneficiary on their RRSPs/RRIFs and by transferring assets with capital gains to their partner at the deceased’s adjusted cost base.

Within existing laws, the approach of same-sex partners and couples of the opposite sex to protecting the financial interests and well-being of their partners are much the same. Some possible strategies include:

• preparing a will that clearly states your instructions.
• writing a co-habitation agreement that defines who owns what and how assets will be split and support determined in the event of a breakdown.
• naming your partner as the beneficiary on RRSPs/RRIFs, life insurance, annuities, and pension plans, where appropriate.
• giving your partner power of attorney or representation to act on your behalf for financial and medical matters in the event you become mentally incapacitated.
• registering assets as joint tenants with rights of survivorship (does not apply in Quebec), rather than joint tenants in common. Remember that doing so must make sense in light of your overall estate; for example, it wouldn’t work to register certain assets as “joint tenants with rights of survivorship” if you want to bequest them or put them in a trust in your will. 
• setting up a living trust prior to death if you want added privacy. (A will is a matter of public record, a trust is not.) 
• if there are minor children, setting up testamentary trusts for any assets they might inherit and well as naming an appropriate guardian in the will.

While the laws affecting same-sex couples are changing to offer more fairness and better protections, don’t wait for them. In order to protect those close to you and the assets you’ve worked hard to accumulate, it’s important for every Canadian to consider their financial and estate-planning priorities – and to put in place a plan that addresses those priorities and protects all their family members.

Sandra Foster is the author of three financial books, including You Can’t Take It With You: The Common-Sense Guide to Estate Planning (John Wiley, 2002).