What can I do if I can't leave my spouse in charge of the kids' inheritance?

What can you do when you're worried that your spouse won't be able to properly look after assets you want to leave to your children? Recently a reader asked me that very question, and I'm sharing the answer here. Here's the question:

"I can not trust my husband with money as he always ends up losing everything in stocks. so is it possible to appoint my 2 minor children as beneficiaries to my life insurance plans, property and other assets? if so, then how do i insure my husband does not get access to the money while my kids schooling and daily expenses are financed through their inheritance?"

Yes, it's possible to name minor children as beneficiaries of insurance policies, but before you do that, there are other options to consider.

If you name a minor on an insurance policy, the child will receive his or her share of the policy on his/her 18th (or 19th, depending on where you live) birthday. The children have no access to any of the money before that. And once they receive it, there are no controls on it. Many parents feel that this is not a good way to deliver funds to the children, as the kids won't have any guidance, help or protection in dealing with the money.

Let's look at what happens when you name your estate as the beneficiary of the life insurance policy. If you do this, it is absolutely critical that your will be set up properly to bring about the outcome that you want. This is too important for you to do a home-made will, so you would need to see a lawyer to ensure that your will is solid.

If you name your estate as beneficiary, and then use your will to leave the funds to your children, your first concern appears to be ensuring that your husband is not in control of the money. The person you name as executor is the one who is in control of the money in the estate, unless you say otherwise. You would have a couple of options here. One is to name someone other than your husband as the executor. The other is to allow him to be the executor but to specifically name someone else to handle the trusts for the children, if you are comfortable with him having even that much control. You could name a sibling, a trusted friend, or a trust company.

If you pass away while your children are minors, your insurance proceeds would flow into the trusts you've set up in your will. If the will is properly drafted, the trustee of the children's funds would be able to pay for things for the children before the age of majority, for example, a school trip when the child is 16, or hockey equipment at age 14.  You would make the decisions about how money can be used at the time you make your will because that's when the trust is written into your will. The wording is very important.

Using your will, you can also decide that your children might not get the full insurance proceeds at the age of majority. Depending on the amount of the proceeds, you might think it a good idea to give them some of the money at 18, and the rest at 21, for example. These is another decision that you make at the time  your will is set up.

Some wills contain specific instructions that the surviving parent is not to be put in control of the money.

There is another side to your question. As I answer this, keep in mind that as far as I know from your question, this is not a second marriage situation. You appear to be asking whether you can leave everything you own to your children. This is probably not a good idea. Simply stated, you can't simply leave your spouse entirely out of your will.

Your spouse is entitled to a share of your estate, simply by being your spouse. If you leave your spouse out entirely, you run a very strong risk that your spouse will make a claim against your estate to be given some or all of the estate. And his chances of winning are pretty good. It's a better idea to figure out a way to benefit both him and the children.

One option is a spousal trust, which would mean putting your assets into a trust for your husband's whole lifetime. He could then use the assets (for example he could live in the house) but he couldn't sell them or mortgage them. Now, there are plenty of downsides to this plan. For one, nothing that is jointly owned can be put into the spousal trust because your husband will already own them by right of survivorship. Second, your children wouldn't get anything until your husband passes away.

Another option is finding a way to divide the estate between them. For example, if your husband receives the home, personal belongings and bank assets by right of survivorship, your children could receive the life insurance policy. And then you'll have to trust him to leave the kids whatever he owns in his own will when the time comes.

You have options, but every decision has pros and cons. I'm really glad that you're doing your research and finding out how to protect your kids. Why not take this information that I've given you and talk it over with a lawyer in your area?

How do I know if someone is contesting the will?

I recently received this note from a reader who is acting as the executor of an estate:

"I have applied for probate and now I'm waiting the 6 months to see if anyone is going to contest the will. If they do contest it, how will I know?"

This is an excellent question, particularly if there is someone in the family who has been making noises about contesting the will. Usually the six months that you refer to is in place to allow a dependent of the deceased to apply for a greater share of the estate. Strictly speaking, this isn't contesting the will, but is only asking the court to change the distribution to give more of the estate to a person who was not sufficiently supported. In most places, a dependent (a spouse, minor child or handicapped adult child) has six months from the day the probate is issued by the court, NOT six months from the date of death.

If someone is going to make this kind of claim, they have to follow the court procedure set out in the law of the province or territory. Every province has its own laws and forms. The person who is making the claim would have to file certain documentation with the court and then serve the documents on you. They don't start a new lawsuit; they file all the documents in the probate court  using the case number assigned to your probate application.

Serving the documents - or giving you a copy of them - is usually done by registered mail or in person. When you filed your probate documents, you would have been asked to give an address for service. If you applied without a lawyer, the address for service would be your home address. If you used a lawyer, the address might be the lawyer's office. And by the way, refusing to pick up your registered mail doesn't mean they haven't served you. They have.

If someone tells you on the phone or writes you a letter saying they are making a claim against the estate, that is not sufficient. They have to go through the proper court process just like you did when you applied for the probate. Just talking about it does nothing. If someone does tell you they want to make a claim against the estate, tell them to see a lawyer.

Can my deceased brother's common law wife claim more than the will gives her?

Here is another interesting note from a reader with a question that many of you will confront as executors or as beneficiaries. This one has to do with a common law spouse claiming a larger share of an estate. Here's the question:

"My brother passed away 2yrs ago. He left everything to two people, me and his common law. His money is split 50/50 between us both. I am received a letter that she is claiming dependant. She feels that because she has a disability that she should receive more. Can this happen and what is there for me to do?"

Yes it can happen, but only within certain guidelines.

In all provinces and territories in Canada, there are laws that allow certain people to claim a larger share of an estate if they believe the will (or intestacy provision) doesn't adequately provide for their needs. In all areas, these certain people include spouses, minor children and adult children who are handicapped. These are generally referred to as "dependent relief" laws.

I see that the spouse mentioned here is a common law spouse. Not all parts of Canada include common law spouses in the definition of "spouse" for inheritance purposes. So this spouse could legally be entitled to all kinds of things including child support, tax relief, pensions etc but still not be allowed to claim a larger portion of the estate. So that is the first thing you have to check on - whether your province allows common law spouses to have succession rights.

In the "interesting links" section of my blog, look for the link called "common law partner succession rights" and click on it. It goes to a table that basically says yes or no to the question of whether common laws are allowed to make this kind of claim.

The second thing that leaped out at me is the fact that your brother died two years ago. In every province and territory where claims of this type are allowed, there is a deadline by which the claimant has to file the lawsuit. It's usually 6 months. Note that this means 6 months from the time probate was granted, not 6 months from the date of death. It would be pretty odd for this will not to be sent to probate for two years after your brother's death. So that is the second thing to look into.

Assuming that your brother's common law spouse does fit the legal criteria of a dependent, and has made a claim within the allowed time, I would think that she would have a decent shot at success. I say this because you  mentioned she is handicapped, though it's never a guaranteed outcome. It's up to her to prove that the 50% she is supposed to receive is not enough. The court will also look at whether she received anything outside of the will, such as joint property, a life insurance policy or a pension.

You, as the other beneficiary of the will, would have notice of the court application and have a chance to read and examine her documentation before the court date. If you want to oppose her application, you can do so.

This isn't something you'd likely want to do without consulting a lawyer. Start by finding out the facts so you know where you stand.

Anyone you'd like to spite in your will?

In all the years I've been drafting wills, I've never had anyone say directly that they want to spite anyone through their will. However, clients have decided to leave out people for various reasons, and those omissions were at times perceived as having been made out of spite. In a case like that, a few words of explanation can go a long way.

Whenever a client of mine wants to omit someone who might be seen as a logical beneficiary, such as one of his or children or a spouse, I always recommend that a line or two of explanation be included right in the will. The words regarding a child are usually along the lines that the parent had given one particular child a lot of financial help that the others didn't receive, and therefore the parent would leave that child less (or nothing) so that all the children ended up being treated equally.

With respect to a spouse, the explanation might say that the spouse is financially independent from the deceased, or that the deceased left assets outside the will such as a life insurance policy.

Including an explanatory clause like this can go a long way to soothing hurt feelings. People tend to be upset when they are treated differently than the other kids under a will. They tend to ask, "what did I do wrong that caused me to be left out?" If there was an explanation such as the one I suggested above, they will see that they weren't actually  left out at all.

In all jurisdictions in Canada, spouses have the right to contest a will if they are not adequately provided for by their deceased spouse's estate. Having a clause that explains that life insurance policies or pensions or RRSPs were left directly to the surviving spouse provide evidence that the spouse has been looked after financially. The clause can help end or even prevent a challenge to the will.

Why let your beneficiaries think you spited them on purpose, causing them to launch a challenge against your will, when you can keep everyone happy with a few words of explanation?

Cartoon from www.andertoons.com

Putting a cork in old world practices

One of my favourite legal blogs, http://www.allaboutestates.ca/, has a new post that talks about what happens in Ontario when a husband passes away leaving his assets in such a way that his surviving wife doesn't have enough to live on. Specifically, it addresses how the wife (in this case, but could be the husband in other cases) can make an advantageous election under Ontario's Family Law Act. Click here to read the article.

Succession rights of common law partners and adult children

I just love it when I come across clear, easy-to-use legal materials! I've recently found just such a resource and I've added it to this page as a permanent link. It's a chart prepared by http://www.mcauleyfinancial.com/ that shows whether common law spouses have the same inheritance rights as married spouses, and if so, how long they have to live together to gain that status. It goes province by province so you can easily find what you're looking for. It also indicates on a second chart whether common law spouses and adult (non-handicapped) children can claim against an estate for more support. Click here to see the chart.

Girlfriend gets graveyard in UK estate dispute

The world of estate litigation is never boring, as you will see from reading about a recent case from the UK. Though it's a case about a woman suing an estate for support from a man she claimed fathered her child, the details are truly bizarre and touch on everything from Princess Diana to hired hitmen. Click here to read it. This one has me shaking my head.

Can I leave my estate to whoever I want to?

Don't you wish legal questions had simple answers? A straightforward "yes" or "no"? Well, this one doesn't have a simple answer.

Theoretically, a person making a will does have the freedom to leave his or her estate to any person or charity that seems appropriate. But there are restrictions.

The restrictions may have some variations from place to place, but one constant across Canada is that everyone must adequately provide for the following dependants in his or her will:
-  their spouse (legal or common-law)
-  their minor children (legitimate or not)
-  their adult children who are prevented from earning a living by a mental or physical handicap

When I say that a person must provide for these individuals in his or her will, I mean that should the person fail to do so, anyone on that list (spouse, minors, disabled adults) automatically has the right to contest the will to get a larger share of the estate or even the whole estate. These cases really do happen on a regular basis, and I've handled many of them myself.

You'll notice that adult children who are not disabled are not on the list. Contrary to what many people think, you are not required by law to leave your estate to your adult children. If you choose not to, you should be aware that you will be going against popular tradition and will probably disappoint your kids. This doesn't mean that you can't do it; it just means you have to take extra care to have a will properly drafted, your capacity documented, and your lawyer's file stuffed full of noted about why you made this decision.

Laws dealing with wills and estates are provincial (except for taxation) so there are some differences between the provinces. For example, I note that there are several recent cases from BC in which the estate distribution set out in the will was successfully contested. In my opinion, those same cases would not have succeeded in say, Alberta, because the law that allowed the change in BC doesn't exist in Alberta. Obviously these laws will allow or prevent you from leaving your estate to whoever you want to.

All of this discussion pre-supposes that when you make your will, you have mental capacity to do so and are acting freely with no coercion by anyone. If your mental capacity has deteriorated to the point where you are making unreasonable decisions, the law says that you can't make a new will, in effect binding you to the will you made before you lost capacity. For example, if you suddenly decided to make a new will leaving your life savings to a new friend you just met three weeks ago instead of your children, you should assume that someone isn't going to like that and is prepared to contest the will.

Two spouses at the same time, and both get support from the estate

In a recent case from Ontario (Blair v. Cooke (Allair Estate)), a judge found that a deceased man had two spouses at the same time, and ordered that the man's estate provide support to both of them. Click here to read a discussion of the case from All About Estates. Note that legislation varies from province to province, so there could be a different result in a different part of the country.

When can you have two spouses?

In this post, Chris Staples talks about a new case (Blair v. Cooke) from the Ontario Superior Court which has said that for the purposes of making a claim for support against the estate of a deceased, the deceased could have two spouses at the same time. This is because more than one person at a time can fit the definition of "spouse" as set out in the Ontario law. Though most of us would logically think that we have only one spouse at a time, this case shows that the law may not agree with you. To read Mr. Staples' comments and the case itself, click here.

A fair share?

The link below goes to an outstanding article from Forum, a publication of Advocis (the Financial Advisors Association of Canada), November/December 2010 edition. It talks about how Canadian law is changing so that a person with a moral claim on an estate may have a fair share of a deceased's estate even though the deceased deliberately left the person out of the Will.  It's an interesting concept - how much right do we actually have to dispose of our estates the way we want to?

The article contains a table (reprinted from the Canadian Bar Association webpage) that breaks down by province who can make a claim against an estate on the basis of being a financial dependent.

Click here to read the article.

If a person paying child support dies, does his estate have to pay the support?

Child support is usually paid monthly over a period of years, until a child reaches a certain age. Sometimes the parent who is paying the support dies before the child has reached that age. Then the question arises as to whether the parent's estate should continue to pay the child support. Whether any money is paid out of the estate for this depends on the facts.

First of all, the arrears of child support are treated differently from the ongoing monthly obligation. If there were arrears owing by the parent at the date of his or her death, that is clearly a debt that will be paid by the estate (assuming there is enough money in the estate).

The question of whether the present and future ongoing child support payments will be paid from the estate depends on whether the parent paying the support expressed any intentions about it. Look first to the Will. Does the parent say anything in the Will about paying child support? Often the paying parent will have a clause in his or her Will that allows the executor to calculate how much the present and future obligations would be, and to pay that in a lump sum amount. By doing that, the child who depends on the payments doesn't get shortchanged, and the estate can still be wound up quickly.

If there is nothing in the Will about child support payments, look at the court order or signed agreement that set up the payments in the first place. Does it say anywhere that the order or agreement would "bind the estate", or bind the payor's "executors, heirs, assigns" etc? If those words, or others very similar in nature, are in the document, then the estate will have to pay the ongoing and future child support. Again, it can be calculated and paid out as a lump sum.

If there is nothing in the Will, and nothing in the agreement or court order, then the estate does not have to pay the ongoing and future child support.

The executor will have to settle this question quite early on in the estate because unpaid child support would have to be listed on the inventory of the estate as a debt.

Can I leave my child out of my Will?

When planning their Wills, parents usually put quite a bit of thought into what they want to leave to their children. Occasionally a parent doesn't want to leave anything to a particular child. There are plenty of good reasons for this. It could be because the parent and child are estranged. It could be because the parent gave the child quite a bit of financial help while the parent was alive. It could be because the parent really wants to leave it to someone else (either a person or a charity). Perhaps the parents have left an insurance policy or other property directly to that child.

Whether or not a parent would be successful in leaving a child out of the Will depends in large part on whether the child is either a minor, or an adult child who can't earn a living because of a handicap. Children who fall into those two categories are considered to be financial dependants of the parent and can't be left out of the Will without a significant risk that the Will would be contested.

Because adult children who are not handicapped do not have an automatic right to contest the parent's Will to get a larger share, the parent does not legally have to leave the child anything. This is an area where real life isn't as simple as the legal rules. A parent who leaves a child out of a Will is going against the expectations of the child and likely of everyone else. A child who is left out of the Will generally feels punished and wonders what he or she did to upset Mom or Dad.

Plenty of people think it's the law that they must leave their estates to their children and that they must treat all children equally in their Wills, but it isn't. It is, however, a strong cultural tradition that children inherit from parents, so if the parent plans to do something else with the estate, he or she is working against a very strong tradition and an even stronger expectation.

Whenever a client of mine wants to do something in a Will which may not seem logical or obvious to other people, I include a clause that briefly explains the person's reasons for taking this route. For example, if a parent were to leave a child out of the Will, the Will would contain a sentence or two giving the facts that the parent won't be around to give in person. It could say that the parties are estranged, or that the child has already been supported by joint property given to him or her. The purpose of including a clause like this is to make it clear to anyone reading the Will that the testator had put thought into the decision, knew that he or she had a child who expected to inherit, and that he or she made a different choice anyway.

Sometimes Wills are attacked on the basis that the testator (in this case the parent) didn't "know what he or she was doing". Having a rational explanation included goes a long way towards refuting that kind of claim.

If you are thinking of leaving one or more of your children out of your Will, please talk to an estate-planning lawyer about this. If you want to do this because of an ongoing problem between you and your child, also talk to the lawyer about how you will be able to protect yourself financially if you should lose mental capacity.

Do I have to leave anything to an illegitimate child I haven't seen in years?

When it comes to estate planning, people often take an "out of sight, out of mind" approach to illegitimate children who aren't part of their lives. They assume that because they don't have a current relationship with the child, and perhaps haven't had one in many years, that the child is simply not a factor in deciding where their assets go after they pass away.

Take for example a man in his late forties who fathered a child while in high school. He didn't marry the mother and has never been a part of the child's life. Later he married someone else and is raising a family with his wife. Most men in a similar position are so sure that the child has nothing to do with them that they don't even mention the child's existence unless I specifically ask. So let's look at what this means for everyone involved.

If the father dies without a Will, his wife will get what is often referred to as a spousal preferred share of the estate. The value of the share varies from province to province but in Alberta, the share is $40,000. After that, the estate is divided among the man's spouse and children. This means biological and adopted children. So, the illegitimate child, who is a biological child after all, is entitled to an equal share of the estate with the children of the man's marriage. That is usually not what the father wants, and it is pretty much guaranteed not to be what his wife wants.

So, we should assume that a man in this situation is going to make a Will expressing his wishes. This raises the question of whether the father must, by law, leave something to the illegitimate child.

The same rules apply to the illegitimate child as apply to everyone else. If the child qualifies as being a person entitled to claim financial support under a Will (i.e. a financial dependent), he or she must be included. If you leave out someone who is entitled to be included, you run the risk that the person will contest the Will. If the child does not qualify, then the father need not leave anything to the child.

In order for a child to qualify as a dependent, the child must either be under the age of majority or must be handicapped to the extent that he or she cannot earn a living. So if the child is under 18, the father must either leave a share to the child, or risk the child contesting his estate to get a share. One of the urban legends going around is that if you leave someone $1 in your Will, that person can't contest your Will. Not true.

Not all fathers want to leave the illegitimate child out of the Will completely. Some want to leave a financial gift simply to acknowledge that they are the father. While the father might not want to leave an equal share of the estate that he and his wife built up together, he might want to leave something from his own assets.

As I've said many times, don't assume you know how the law applies to you. It's always worth it to sit down with an estate planning lawyer and talk things over.