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Tuesday, December 7, 2010

If I die and my spouse remarries, who inherits the money?

This is a common question, and a real worry for some people. The question is most often asked by the parents of young children, though it's applicable to the parents of children of any age. The fear is that a married person will leave everything to his or her spouse, then the spouse will get married again and leave everything to that spouse. This would leave the children out in the cold.

For example, Bill and Mary are married. They make Wills leaving everything to each other, and when both are gone, divided among their kids. Bill dies. Mary inherits everything. Mary re-marries to Dan, and when she dies she leaves everything to Dan. It's possible - and believe me, it happens - that Dan's children could eventually get everything while Bill and Mary's children get nothing.

Why would someone in Mary's position leave everything to Dan, you ask? There are plenty of reasons. Mary might not realize that the Will she made while married to Bill was revoked by her remarriage and thinks she still has a Will leaving everything to her kids. Perhaps she meant to make a new Will "one day" and never got around to it. Maybe she thinks that Dan legally has to share her estate with her children. It's easy to misinterpret the law.

It could be that Mary trusts Dan to "do the right thing" by her children. One of the worst Wills I've ever seen was a one-paragraph Will done by a woman in her second marriage, who had an adult son by her first marriage. All her Will said was that she wasn't leaving anything directly to her son because she was sure her husband would look after him. Well, she was wrong. The husband, who had an estate of nearly $6,000,000, did nothing for the son. The son literally lived on the street after his mother passed away.

So what can you do about this to prevent it happening to your kids?

The following ideas are not things that you should put into effect without talking to your lawyer, who can help you sort out the legal and tax implications of your plans:
1.  Make a Will.
2.  Give part of your estate to your spouse and leave the other part of it directly to the children, even if this means you have to hold the kids' shares in trust for them for a while.
3.  Leave your estate in a spousal trust so that your spouse can use what is needed for his or her lifetime, but the estate in general will be held for the children after your spouse dies.
4.  Give your children some money while you're alive (assuming of course that you don't need that money to live on), perhaps in the form of a down payment on a house for them.
5.  If you set up a spousal trust or children's trust, appoint a trustee who is not your spouse or children.
6.  If you have an RESP for your children, appoint a successor owner of the plan.
7.  Make mutual Wills for you and your spouse, meaning that the Wills include a contract that neither of you will change your Wills after the other one dies. These are pretty rare and can cause a lot of other problems, but ask your lawyer about it if it interests you. (By the way, Wills made by a husband and wife that are the same except that they mirror each other's names are NOT mutual Wills. I've seen them called mutual Wills many times, even by those who should know better, but they aren't. With a Will like that, your spouse can make a new Will after you die).

Some of you are reading this post and are horrified. You're thinking that your spouse would never intentionally leave out the children, and youre probably right. But assuming you die later in life, and leave your spouse widowed, your spouse wouldn't be the first trusting senior to be taken advantage of.

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