Second marriages complicate estate planning

Grief after a divorce or the death of a spouse can last months, even years. Then, even though you may have thought it could never happen, you meet someone else. Marriage is just as meaningful the second time — you want to tell the world of your love. But a second marriage can be more complicated, with significant assets and children from previous marriages to be considered. For most people, an updated estate plan is advisable.

Indeed, remarrying couples face important decisions about property, including whether to keep assets separate or to combine them. For some, a marriage contract or pre-nuptial agreement can protect you and your own children in case the marriage breaks down.

At the same time, remarriage lets you take advantage of some tax deferral opportunities that apply to spouses and common-law or same-sex partners. For example, your RRSP or RRIF can be rolled over when you die to your spouse with no immediate tax consequences. You can also leave assets with unrealized capital gains to your spouse without immediate tax consequences.

Updating your will
Whatever your goals, updating your will is crucial to your new circumstances. Inost provinces, both marriage and remarriage automatically revoke significant clauses in an existing will unless the will specifically states it was prepared “in contemplation of marriage.” While you could use an amendment or codicil, it makes more sense for each of you to prepare a new will. If the will is prepared before the marriage, you may want to state that benefits to your intended under the will are dependent on the marriage actually taking place. Other considerations may include:

• removing your previous partner from the will;
• adding your new spouse to the will;
• naming a new executor/executrix;
• if you pay lifetime spousal support under a divorce agreement, earmarking part of your estate or, alternatively, purchasing life insurance (on your life) to cover these obligations;
• protecting inheritances to your children from a previous relationship.

Watch for language pitfalls
Many married couples prepare wills, known as “mirror” wills, that initially leave everything to the surviving spouse and, on the last death, to their children. When you remarry, however, be aware that leaving everything to your new spouse means trusting his or her goodwill to ensure your children eventually receive the inheritance you envisioned.

There’s also the matter of wording. I once saw a will stating if he died first, his estate was to be divided between the surviving spouse and her children. Her parallel will said that, on her death, her estate was to be divided between her surviving husband and his children. These wills could have effectively disinherited their own children.

If you have children from a previous marriage, one solution on remarriage may be to specify an amount to be left to your children on your death and bequeath the balance of your estate to your new spouse. Another option is to leave your estate to your new spouse in a testamentary trust. This would allow the income and some or all of the capital to be used during your surviving spouse’s lifetime. Then, when he or she dies, the testamentary trust would distribute the trust’s remaining assets to your children.

More money matters
Remarriage also calls for a fresh look at other aspects of financial life, including:

Life insurance. Be aware that neither divorce nor a second marriage automatically revokes beneficiary designations on your policies so you must update these in writing.

Registered plans. Unless they’ve been allocated to your former spouse and children as part of a divorce agreement, update your beneficiary declarations on your RRSPs, RRIFs and annuities.

Pre-estate documents. Your powers of attorney for finances and health designate who will make decisions on your behalf in the event you’re unable to do so while you’re alive. Discuss these matters with your new spouse.

Government pensions. If you’re collecting Canada Pension Plan benefits as a result of the death of spouse, so-called Survivor’s Benefits will continue if you remarry. (Previously, remarriage disqualified further benefits but the rule was changed in 1987. If you previously lost CPP survivor benefits because you remarried, check with Human Resources Development Canada to see if you’re eligible.) Remarriage does not affect your basic OAS benefits.

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