Remarried? Update your will
It’s not like the first time around when there was an abundance of optimism and little in the way of assets. This time you’ve got more life experience, the assets that go with it and maybe even children from a previous relationship.All major life changes mean you should review your estate plan. Remarriage requires that, at the very least, you update your will. When preparing wills, many spouses leave everything to each other and then, on the death of the last surviving spouse, pass the estate to the children, charity or other relatives.
While this can be tax effective and appropriate in a first marriage, you must also consider the fairness of this strategy in a second marriage.
For example, if you have children from a previous relationship, leaving your new spouse everything may not be appropriate. It would be left to the goodwill of the surviving spouse to indicate in his or her will what your children will receive upon his or her death.
A new will, prepared by the surviving spouse after your death and neglecting to mention your children, would mean your children could be left with nothing.
I once metewlyweds, married just more than a year, each with two adult children from previous marriages. They had recently prepared identical wills with instructions that on death, everything would go to the surviving spouse and, on the death of the second spouse, to the surviving spouse’s children.
Each had unwittingly written his or her own children out of any inheritance. At least they couldn’t be accused of favouritism!
Trust is option
Their real intentions were to provide for the survivor and to have all four children inherit equal shares of their estates. They were at the lawyer’s office by 10 a.m. the next day to set the record straight.
For this couple, the lawyer also recommended that the inheritance left to the surviving spouse be held in a testamentary trust, rather than being passed on outright.
Each year, the spouse would be entitled to all income earned by the trust and a portion of the capital. On death, the remaining capital in the trust was to be distributed to the children.
Next page: Tax savings
Using a testamentary trust would help protect the children of the spouse who died first, in the event the surviving spouse rewrote his or her will. Because of the potential tax savings, it could also create a larger estate for the children.
Since the income earned in a testamentary trust is taxed as a separate taxpayer, in this case, less tax would be payable each year than if the spouse inherited the estate outright and had to pay tax at his or her tax rate.
Another consideration is the relative ages of your new spouse and your children. Suppose your new spouse is 20 years your junior. Rather than leaving your entire estate to your spouse (even in a trust), you might consider leaving some to your children on your death.
That way, the timing of their inheritance doesn’t depend on when your new spouse passes on.
There are many other things to consider. For example:
- Are there any support obligations that continue after your death?
- Who will look after your aging parents or children with special needs?
- Who should be the executor?
- Should the executor be someone from your side of the family, your spouse’s side or both?
You may want to select a neutral executor who understands the family dynamics and can work through any potential family feuds.
Checklist for second marriages:
- Are you clear about what’s mine, what’s yours and what’s ours?
- Do you know that marriage also means you need a new will? Even though you’re just starting your life together, you need to contemplate the end.
- Does the beneficiary on your company pension plan need to be updated?
- Is the current beneficiary named on your life insurance policies and RRSPs/RRIFs?
- Do you have enough life insurance?
- Who should be your power of attorney or representative for health care and financial matters?
- Would a marriage contract help prevent misunderstanding between family members?
- Have you communicated your intentions to your children?