Protect your business from your spouse

Have you made your spouse a shareholder in your business? Many couples set things up this way even when the spouse really has nothing to do with the business. If you have made this arrangement, or are considering it, you should read the attached article from http://www.capitalmagazine.ca/. It will tell you the pros and cons and help you think through the decision. There is some really good, straightforward information here. Click here to read the article.
The attached photo is also from http://www.capitalmagazine.ca/ .

Divorce doesn't change your beneficiary designations

Today I had a phone call from one of the Scotiabank branches I work with. A customer was dealing with her father's estate. The father's will said that everything he owns should be divided between his two kids. Now here's the problem: when the father got divorced years ago, he didn't change the beneficiary designation on his RRSP. He left the designation as his ex-wife.

The RRSP contained $100,000 and was by far the largest asset of the estate, which was otherwise modest. The customer found out from our branch that not only was the ex-wife going to receive the RRSP, but the rest of the estate was going to be used to pay the tax on it. The kids weren't going to see a dime.

It was at this point that our staffer called me to see if this could possibly be right, since it seemed so unfair. Unfair or not, it is the law. The will didn't change the beneficiary designation on the RRSP. Neither did the divorce judgment. If the father didn't want his ex-wife to receive the money, he should have changed it some time over the years since they divorced. Otherwise the law will presume that he intended to leave her on as beneficiary.

This is not an uncommon situation by any means. I see several estates like this every year. Unfortunately, if this client's father, who made his own handwritten will, had spent even ten minutes talking to an estate planning lawyer, he would have found out that his money would go to his ex and not his kids. He probably didn't realize the importance of changing what must have seemed like a paperwork detail.

All divorced or separated people should realize that nothing automatically changes your beneficiary designations. They don't change unless you take steps to change them. A divorce settlement, separation agreement or Minutes of Settlement that contain standard boilerplate words to the effect that you and your ex won't make claims against each other's estates won't change anything. Receiving money when you're the designated beneficiary is not "making a claim" so this clause doesn't apply.

It's bad enough to lose a parent. Having them leave an estate mess behind is a nightmare. Do your children a favour and find out how the law affects you before you sign a legal document, even if it's one you wrote yourself.

Unhappily married? Check your will

Over the last several months I've blogged a few times about the new laws about to take effect in Alberta. These new laws touch on wills, intestacy, claims by dependants, and matrimonial property division, among other things. This article from http://www.capitalmagazine.ca/ goes into some detail about how you can now "divorce the dead". I recommend that all Albertans read it by clicking here.

Was Pat Robertson right? Divorcing a spouse with dementia

Is it alright to divorce a spouse who has dementia when the dementia has caused the spouse to forget who you are? What do you owe them? What about your own emotional needs? This heart-wrenching argument has two very emotional sides to it, and has recently flared up in the US. Click here to read a blog post by Paula Span, which will also link you to a recent story in the New York Times.

Many of us have a parent, spouse or close friend with dementia, and many of us are their caregivers. This issue won't leave you untouched if you have someone with dementia in your life.

If I inherit from my parent, do I have to share with my spouse on divorce?

The readers here certainly keep me busy with excellent questions. Here is another question that I believe will interest many of you:

"If a married person inherits property from their parent, is that property theirs alone? or does their spouse have legal right to it, in the event of a divorce?"
 The intersection of estate and family law is always complicated.  The general rule or starting point is that inherited property is exempt from being divided when a couple breaks up, but the answer to this question is going to depend on several factors.

The first factor to consider is the law in your particular province. Divorces themselves (i.e. the dissolution of the marriage) is governed by federal law so it's the same across the country. Matrimonial property division, on the other hand, is provincial and differs from one province to another. Laws that govern estate distribution are also provincial, so there is no one combination of laws that applies to every Canadian.

For example, in Ontario, it's possible to state in a will that a gift to an adult child under a parent's will does not become community property in the event of a marriage breakdown. Putting this in a will is specifically allowed under Ontario law though not all provinces have the same provision.

Also remember that the outcome may well be different based on whether the child receiving the gift is alive to receive it when the parent dies, or whether the child has already died before the parent's death.

The next thing to consider is what the child who inherited the property did with it after receiving it (assuming the parent died first and the child survived). If the child used the inheritance to, say, put a down payment on a house in his name and his wife's name, this could well be taken as a gift from the husband to the wife. It will be too late on divorce to say that he wants to take back his gift. It's all very well to say that inherited money is exempt but it's not a very useful rule if the money can't be traced to the inheritance or it has been given to the spouse.

On the other hand, if the child who received the money kept it separate from his (or her) spouse's funds or joint family funds in an account of its own, it will be clear that the child never gifted the money to his or her spouse. Many people think of this point too late.

Another important consideration is the wording of the parent's will which gives the gift to the child. A gift to an adult child in a parent's will should be followed by instructions on what to do if that adult child dies first. Does Joe's mom's will say that if Joe dies before her, Joe's wife gets his share, or his children get his share? Most of the time, the child's share is directed to the child's children and not his or her spouse.

Finally, consider the terms of any pre-nuptial agreement that the child and his or her spouse might have signed. Generally this type of agreement will address inheritances.

I suppose what any reader can take from this post is that a general rule exists, but it is very much affected by the specific facts of any given case.

Alberta's new Wills and Succession Act - part 4

As I mentioned in parts 1 through 3 of my posts about Alberta's new laws, the changes will be enormous. The change I'd like to tell you about today has to do with marriage, divorce, common law relationships and what they do to your will in Alberta.

[Note: in Alberta common-law relationships are called adult interdependent relationships. They can be either opposite-sex or same-sex, and the couples in these relationships are referred to as adult interdependent partners or AIPs.]

The old law (which is still in effect through 2011) says that any will you made before you were married is automatically revoked when you get married. The only exception was a case in which the will was specifically made in contemplation of a specific marriage and referred to the marriage in the will. It also said that if you got divorced, there was no effect on your will. All of this is changing.

Under the new law, your will is not going to be revoked just by getting married, no matter when your will was made. Your will is not going to be revoked just because you become an AIP.

The new provisions about what happens when a relationship ends are also radically different from what they were before. If your marriage or adult interdependent relationship ends, your will is still valid, but any gift to your ex-spouse or ex-AIP will be revoked, unless your will specifically says otherwise.

The gift that would have gone to the spouse/AIP will be treated as if the spouse/AIP had died. Most wills have - or should have - directions for paying out the estate if the spouse has already died, and those directions will be followed.

This rule applies no matter when the will in question was made, but only applies to divorces or termination of AIP relationships that happen once the new law comes into effect.

It would be a good idea to take out your current will and read it over with these changes in mind. Many clients will be making appointments to review their wills with their lawyers once the new law comes into force, and I strongly recommend that you do that as well.

Should I re-do my will when I am separated from my spouse?

While at one of the local Scotiabank branches yesterday, I happened to stop to chat briefly with a customer. She said that her banking officer had just told her that because she is separated from her spouse, she should re-do her will. She didn't really understand why. She isn't alone; many of us don't really think about wills during that particular life event, and even if we do, we don't necessarily understand the implications.

In many parts of Canada, including here in Alberta, becoming separated or even divorced from your spouse doesn't have any legal effect whatsoever on your will. Most married people have wills that leave their entire estates to each other. Usually you're not quite so keen for the person to have your whole estate if you're not married to them anymore.

You could, for example, spend a year or so battling through your matrimonial property division until all assets are divided. But if you are killed in a car crash and haven't changed your will, your former spouse will get everything right back again under your will.

This isn't the same everywhere. In Ontario, separation has no legal effect on your will. However, if you are divorced, the parts of your will dealing with your spouse are rescinded. Your will might be alright, but then again it might not. If you appointed your spouse as your executor, as most married people do, and then left the whole estate to him or her, rescinding those parts of the will might have the effect of rescinding pretty much all of your will.

Your goals have changed now that you are separated, and your will should reflect that to make sure that your current wishes are carried out. Most people will want to focus on leaving funds to the children or if there are no children, to other family members and charitable organizations.

Making a separation agreement in which you both agree not to make claims on each other's estates (which is standard boilerplate language) does not in any way change your will.

In my view, the banking officer was absolutely right to alert the customer to the need to look at her will during her separation. This is good advice right across the country.

The rise of silver divorce: When couples over 60 break up

This is a thoughtful and insightful article by Chris Cooper, CFP, about the fact that more couples over the age of 60 are getting divorced. Perhaps the reasons for this trend will surprise you. Click here to read the article.

Update your will in your 40s and 50s

I have another article in today's Globe and Mail. It's a natural follow-up to last week's article, which talked about starting your estate planning in your 20s and 30s. Today's article discusses keeping up with the changes in your life - personal, financial, and business - and making sure that your estate plan reflects those changes. The title in the Globe refers to "30s and 40s" but the article is about "40s and 50s". Click here to read it. Hope you enjoy it!

Estate Planning Considerations for Separated Spouses

In this article, Megan Connelly discusses why spouses in Ontario who are separated but not yet divorced should think about estate planning. There are important details in this article that I bet you hadn't thought of. Click on the link below to read the article:

Estate Planning Considerations for Separated Spouses

Dennis Hopper estate battle moving into high gear

This story talks about Dennis Hopper's estate, but also about how a pending divorce fits into the estate planning picture. Click here to read the story. The attached photo is also from that story at The Probate Lawyer Blog.

Till Death Do Us Part, Quickly - Then I Inherit

Here's a financial path I hadn't considered - that of predatory marriage partner. Apparently marrying an older, wealthier person is on the upswing as a means to achieving financial ends. This arrangement has always existed, of course, but some say its prevalence is growing. Nah, I think I'll stick with practicing law.

Click here to read the article from All About Estates.

When I inherit, how do I keep that money out of the hands of my spouse?

For the purposes of this discussion, let's assume that there was nothing in your parent's Will that either requires you to share your inheritance with your spouse, nor specifically prevents that from happening. In other words, this discussion is about YOUR actions and what effects they will have on money you inherit from your parents.

If you share your inheritance with your spouse, for example by using your inheritance to pay down a mortgage on a home that you and your spouse both own, then you cannot later decide to take it back. You've already turned your inheritance into joint property and given your spouse a gift of the money. Should you and your spouse later become divorced, the accounting and legal arguments involved in sorting out who owns what part of the home will become expensive and time-consuming.

Keeping a family inheritance separate sometimes becomes very important to individuals who are in second marriages. The individual's goal is often to ensure that the money inherited from his or her parents is passed on to his or her children. They feel that this is more in line with what the parents wanted, rather than have the money passed down through a son-in-law or daughter-in-law to step-grandchildren.

It is possible to keep the money separate. The person who inherits should open a separate account in his or her name only, and put the inheritance in there. Interest earned can accumulate in the account. Nothing else should be added. This way it remains easy to trace the origin of the money and it's clear that no joint money was ever added to it.

This matters if there is a divorce, because in most jurisdictions in Canada, money that was inherited by one of the people divorcing is exempt from being divided with the spouse. As described above, if you don't make sure that it's clearly inherited money and nothing else in the account, that account could be attacked and you could lose some of it.

When you make your Will, you can specifically leave that account to your children. I have always added a few words to my clients' Wills to identify the account as being one that was inherited from a parent. An alternative, of course, is to give some or all of your family inheritance to your children while you are alive, either by a direct transfer or by buying assets in joint names with them.

Answering more questions about joint property

I really do try to answer readers' questions as quickly as possible but I'm the first to admit that sometimes it takes me a while to get to them all.

I continue to get tons of questions about joint tenancy of homes, and about tenancy-in-common. I'll answer a few of them briefly here (let me know if you need more expanded answers):

Q: My spouse, who is also the joint tenant of our home, has died. How do I change the title into my name only?
A: Take an original Death Certificate (not Funeral Director's Statement of Death) to the Land Titles Office. You will fill in a document called a Declaration of Surviving Joint Tenant, or variations on that in other provinces. You then hand in the document to the Land Titles Clerk, who will amend the title for you. You do not need probate for this.

Q: Two people own a house as joint tenants. What happens if one dies and the surviving joint tenant has Alzheimer's disease?
A: The surviving joint tenant still gets to own the house, with or without Alzheimer's disease, as that is the legal right given by joint tenancy. The question may really be about the logistics of the paperwork, since a person with advanced dementia is not able to understand and sign legal documents. Who can act for this person? If the person with Alzheimer's disease has an Enduring (Continuing) Power of Attorney, it may be used to deal with the land. If there is no Power of Attorney, it may be necessary for someone to be appointed as a trustee by the court.

Q: What happens if both joint tenants die at the same time and there is no Will?
A: If it is impossible to tell which of the joint tenants died first, the law says that the one who is younger is deemed to have outlived the older one. This means the joint title first transfers to that joint tenant, leaving the land in his or her name only. If there is no Will, all of the assets of that person, including the land that used to be in joint tenancy, will be distributed according to the provincial intestacy laws. In Alberta, that would mean children of the second joint tenant first. If there are no children, then his or her parents. If there are no surviving parents, then siblings. Nothing will go to the family of the older joint tenant who died first. See my earlier post here about survivorship of the younger person.

Q: Does a joint title change to tenancy-in-common if one of the joint owners remarries?
A: Nothing is going to happen automatically if one remarries. The title will stay the same until the joint owners both sign documents to bring about a change. One can't do it on his or her own. Remarriage on its own won't change anything. If this question refers to a house that was the matrimonial home and now the couple is splitting up, I assume that the house will be dealt with in the subsequent property division. In other words, you'll divide everything up and one of you will get the house. As part of that agreement, you'll both sign a Transfer of Land document that transfers the house to one owner only.

Am I still the executor of the Will of someone I've divorced?

Here's another recent question (you can see from the variety of things people ask me that my job is never dull!).

If a husband and wife make Wills that appoint each other as their executor, and later they get divorced, are they still each other's executors? Is the executor appointment revoked by a separation agreement, minutes of settlement or divorce decree?

Divorce in itself does nothing to your Will. So the fact that you are divorced will not change the fact that you're an executor for your ex's Will. Signing an agreement doesn't change it either.

To remove your ex as your executor, you need to either make a new Will or make a Codicil to the Will. Most people want to make new Wills after divorce anyway because they don't want to leave their estate to their ex.

If the Wills were never changed, your ex dies, and you do not want to be the executor, you can choose to renounce your appointment. This basically means to refuse to be the executor, which every executor has the right to do. Hopefully when the Will was made, an alternate executor was named, and that person will do the job instead of you.

Does my separation agreement change my Will?

When couples marry, they usually make Wills leaving their estates to each other. They also name each other as the beneficiary on life insurance policies, RRSPs and pension plans. When a couple separates on the road to divorce, they no longer want to leave everything to each other. They go through a period during which custody of the children is worked out and the assets and debts they gathered as a couple are divided between them. The end result is often a separation agreement, minutes of settlement or some other written agreement between them.

A phrase that is often used in this kind of document is a general statement that the parties release each other from all claims against each other's estates. This seemingly harmless statement has caused problems for individuals who misunderstand how it affects them. Much to the dismay and disbelief of many a spouse, this clause does NOT mean that the ex is no longer the beneficiary of the policies and plans.

The intent of the "no claims" phrase is for both parties to the agreement to indicate that they believe the property settlement in the agreement is fair and they agree to it, and as a result will not make any claims for financial support from each other's estates.

Plans and policies with a named beneficiary don't fall into your estate.

If you have named your spouse as the beneficiary of an insurance policy, RRSP, segregated funds, pension plan, ESOP, LIRA, etc, the general "no claims" language of a separation agreement will not change that. You still have to change it yourself.

The only way to use a separation agreement to change a particular plan or policy is to specifically identify that plan or policy in the agreement. For example, with a life insurance policy you would have to name the policy number and the insurance company. Even then, you would be smart to contact the insurance company, pension administrator or bank directly to make the change you want.

Can my Will be changed without my knowledge?

The general answer to the question of whether your Will can be changed without your knowledge is "no", but as with all general rules, there are exceptions.

Nobody can make a Will in your place. A Will is a unique combination of facts, thoughts, intentions and wishes that nobody but you could have. If someone is acting under a Power of Attorney or a court-appointed trusteeship on your behalf, they cannot make a new Will for you without your knowledge (in New Brunswick they can do so with court permission only). This is not to say that you cannot have help signing your document, if you for some reason cannot physically sign it yourself. But even then, the contents of the Will still reflect your wishes and not someone else's.

A situation in which your Will might be changed without you specifically intending it is marriage. If you make a Will and then later get married, your Will is automatically revoked, unless it says in the Will that it was made in contemplation of that marriage. Having your Will revoked would certainly be a change in how you thought your estate would be distributed, as the Intestate Succession Act would dictate how it was to be divided. Also, the executor you had chosen in your Will might not be the person who ends up being in charge of your estate.

Sometimes people make changes to their Wills without meaning to. For example, a person might sign a divorce agreement or separation agreement without fully realizing how it affects his or her estate.

It works the opposite way too, in that a person can think he or she has changed the Will when he or she has not. I've met a number of divorced people who think that the general language in the divorce or separation agreement that the ex spouse will have "no claim" against his or her estate means that everything, including life insurance policies, pensions, RRSPs etc have all been changed by the agreement. Unfortunately, all of those financial instruments must be changed individually by the owner.

Also, making beneficiary designations on insurance policies might end up changing things. A common example of that happens when a parent makes a Will stating that the entire estate is to be divided among his or her children, and should one child die, that child's share is to be divided among the child's children (the parent's grandchildren). Then the parent buys a life insurance policy and puts all of the children's names on it as beneficiaries. What often isn't clear is that the policy will be paid to whichever of the beneficiaries is alive at the time, and there will be no payment to the children (grandchildren) if one child has died. Now there will be an unequal distribution of the estate because of the life insurance money.

This is one of the reasons that I do not like most people to use home-made Wills without consulting an estate lawyer. It is well worth the money to spend an hour reviewing your entire situation to make sure that everything you're doing for yourself and your family is really going to happen the way you think it will upon your passing.

As I often tell my seminar audiences, the goal of estate planning is not a piece of paper with "Will" written on it. The goal is to plan, look at everything, tie it all together and attain peace of mind. The piece of paper that you sign at the end of this process is just the proof that you've been through the process.