Update your estate plan when spouse dies

The door has closed, friends and family have returned to their normal routines and the house seems incredibly empty. As you undertake to settle the estate of your spouse or partner and make your way through the difficult stages of grief, it’s also important at this time to ensure your own estate plan continues to fulfill your needs.Ideally, your estate planning documents cover the likelihood one spouse or partner will outlive the other. However, I’ve found estate plans sometimes make assumptions — such as that a partner with a serious medical condition will predecease the other — only to find that life doesn’t unfold that way. If you named your now-deceased spouse or partner as the beneficiary of your RRSP, RRIF, pension plan and/or life insurance policy, it’s important to review and update these beneficiary designations.

Above all, I believe your first financial responsibility is to yourself. As you review your estate and income plans, here are some important areas to consider.

Updating your will
Name a new executor, if necessary. If your spouse or partner was the sole executor, name a replacement at this time. If y named your spouse or partner as primary executor but also named another executor (or other executors), be aware that these backups will now act on your behalf when the need arises.

Revisit your bequests. If your spouse’s will left everything to you (and in the event of your death, to the children), consider whether it makes sense to give some money or assets to the children or make a charitable donation now, while you’re alive. This would reduce the amount of probate tax or fee that would otherwise be due on your death as well as short-circuit any challenges to your estate. A receipt from a charitable donation could also reduce your tax bill.

Update the language. If your will hasn’t been updated for years, this is a good time to review with your lawyer to ensure it contains the most up-to-date language and terms. This will help  protect you and your estate from any ambiguities that may have arisen from changes in tax and other legislation.

Updating powers of attorney
A will provides an executor with no powers until the death of the testator. Pre-estate documents, such as powers of attorney for finances and health (the name varies across the country), give the appointed individual(s) authority to make decisions related to financial matters and health care while that individual is alive. Many couples name each other primarily to make such decisions. Now is a good time to consider naming backups for your appointees who may become unable or unwilling to do the job in the future.

Updating beneficiary designations
Canada/Quebec Pension Plan. Though there is technically no beneficiary designation on CPP/QPP, you, or you and your executor, should file the paperwork  to ensure you receive any lump-sum payment or survivor’s benefits to which you’re entitled. 

RRSPs and RRIFs. Without a current named beneficiary, these assets could default to your estate and be distributed according to the instructions in your will. Generally, without a spouse or a partner as beneficiary, the proceeds of these registered plans become fully taxable on your final tax return. There are exceptions. You could, for example, name a financially dependent child as beneficiary or, if you have a spouse, elect with the executor to roll over the registered plan. However, if your beneficiary is someone other than a spouse or a financially dependent child/grandchild, the tax due is paid out of the estate. If there isn’t enough money in the estate to cover this tax liability, the proceeds may be taxed in the hands of your beneficiary.

Pension plans and annuities. If there is a guaranteed period on your pension plan or annuity, you may want to update the beneficiary so the proceeds are paid directly to a named individual, rather than being distributed through your will.

Life insurance policies. If the purpose of a life insurance policy was to provide a lump sum to help pay the final tax bill and preserve the value of the estate, you may want to retain the “estate” beneficiary designation on the policy; otherwise, you’ll have to name a new beneficiary or beneficaries.