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Thursday, July 1, 2010

Rights to property when a husband or wife passes away

The laws that touch on estate planning and estate administration favour spouses over other people in many ways. For example, if someone dies without a Will, the person having first priority to apply to become the administrator of the estate is the spouse. As another example, a person can roll over his or her RRSP to his/her spouse on death on a tax-deferred basis whereas he or she can't get the same rollover tax break with other people.

But what are the limits on the rights of a spouse when his or her better half passes on? Many people decide not to make any estate plans because they somehow assume that the spouse left behind will own everything and have the right to look after everything. That isn't the case of course, so let's talk about the real situation and what you should do.

First of all you must realize that the simple fact that you got married doesn't change joint ownership of property you already own with someone else. If you own a cottage jointly with your brother, or your home is still jointly held with your first spouse, simply getting married without you taking any other steps won't change the ownership.

Getting married doesn't automatically change your life insurance policy designation or your RRSP designation. If your policy still names your mom or your children from the first marriage as the beneficiaries, the fact that you got married will have no effect unless you contact the insurance company or bank and request the change.

If you haven't made a Will, your spouse is probably only entitled to a portion of your assets (depending on where you live and whether you have children). So if you want your spouse to "own everything" after your death, you have to take some steps to make that happen.

A number of things have to work together. You need to make a Will that deals with all of the assets that are in your name alone. If you want your spouse to own real estate that you currently own jointly with someone else, you are out of luck unless you take steps to change the title while you are alive. Saying in your Will that you want him or her to own your joint property will do nothing as the joint owner has a right of survivorship that a Will can't touch.

You also need to look at beneficiary designations on your life insurance, RRSPs or RRIFs, and pension plan. If your spouse is not the beneficiary designated then your spouse is not going to inherit it after you pass away. An exception may be pension plans, as many are payable to your spouse even if you have not updated your records with them. Unlike joint property, you can change a beneficiary designation on many financial plans using your Will.

The other part of spousal rights after a partner's death is the right to deal with your assets. I often hear a person make a statement like "my wife can sell my stuff after I'm gone" when that person hasn't made a Will naming his wife as his executor. If she is going to sell anything that isn't hers, she is going to have to apply to the court to become the administrator of your estate first.

The bottom line is that although there are special allowances made between a married couple in tax laws and other relevant laws, a husband and wife are still two people, not one. If you want to bring about a certain set of circumstances, you have to actively take steps to set things up that way.

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