My husband owns the house - what happens if he dies?

This is a question recently asked by a reader, that I'd like to answer here. I'm glad this question is being asked while both parties are still living and there is time to make changes, if necessary.

The facts seem simple, but there are many more facts that I would want to know in this situation. First I would check the title to see exactly who owns the house. Is the wife correct in her belief that her name is not on the title? Is the husband the only owner or is there someone else on title as well? This sometimes happens when a property is handed down through a family; the husband's siblings might well be on title too.

Assuming that the husband is the sole owner of the property, I would then want to know whether the parties were legally married or common-law partners, and I'd want to know which province or territory they live in. A couple of provinces, including Alberta, still have Dower rights which give a surviving spouse a life interest in the home when the spouse dies. Dower rights don't apply to common-law couples.

I would also want to know whether the husband has a valid Will, and if so, what he has said about the property in his Will. If he is the only owner of the house and he leaves his entire estate to his wife, then the house will simply be transferred to her. It could be, however, that if the husband is in a second marriage, he might plan to leave the house to his children of the first marriage. Or he might have created a trust for his wife, which would allow her to live in the house but not sell it.

Tied in with the issue of the Will are any beneficiary designations the husband might have made, such as RRSPs and life insurance, that might impact the wife's case if she were to bring a lawsuit claiming a larger part of the estate. Spouses are always included in the group of people with an automatic right to contest an estate if he or she is not adequately provided for. Her application would also be affected by rival claims to the estate such as those of minor or handicapped children.

Another fact that might impact the fate of the house is the husband's debt situation. Does he have a mortgage, and if so, is it life insured? Does the house secure a line of credit or a business loan? Is there enough money in the estate to pay all debts he leaves behind?

A simple question, perhaps. But a simple answer? That's not so easy.

Re-visiting the Dower Act - or, what happens to the family house

Because I get so many questions about what happens to the family house when one spouse passes away, I thought I'd touch on this subject again.

First of all, the Dower Act has been repealed in almost every province in Canada but is still in place (for now) in Alberta, so these comments only apply in Alberta.

The Dower Act gives certain property rights to married spouses. They do not apply to common law spouses.

When a married couple lives in a home that is only in the name of one spouse, and that spouse dies, the surviving spouse has the right to live in the house for the rest of his or her life. The surviving spouse does not own the house and does not have the right to sell or mortgage the house. It is simply a right to live there.

In estate planning, this sometimes affects couples who are in second marriages, because the spouse who owns the house may wish to leave the house to his or her children from the first marriage. He or she usually makes a Will to that effect, not realizing that the children can't get title to the house until the suriviving spouse passes away. That could be years later. This tends to disappoint the children, who have been told by their parent that they will inherit the house and weren't expecting to have to wait.

The basis for the Dower right is that only one spouse owns the house. None of this applies if both spouses have their names on the title.

What do people in a second marriage have to consider when making a Will?

Because I get so many questions about second marriages, and because it's so tricky to get estate planning right for individuals in this situation, I thought I'd talk a bit about some of the issues that specifically apply to people in second marriages. I'm not going to cover issues that apply to ALL married individuals, but only those that crop up with second or subsequent marriages.

Firstly, in some provinces, getting married automatically revokes an existing Will. If you made a Will after your divorce to look after your children, that Will was revoked when you re-married.

You'll realize when you start discussing your estate planning that you're going to have to carry out a balancing act between the various people in your life. You owe an obligation of financial support to certain people, including your spouse (married spouses in all provinces, common law spouses only in certain provinces), your minor children, and your children who are adults but who cannot earn a living due to a disability. This gets tricky for people in subsequent marriages because they often have two sets of children - one from each marriage.

I talked a bit more about that balancing act in a post here.

There are some other issues as well. For example, have you adopted your step-children? Typically people going into a second marriage only adopt their step-children if the children are quite young, but that varies. Understand that for the purposes of estate planning, non-adopted step-children have quite a different legal status than adopted step-children. If you don't make a Will at all, or the Will you have made is found to be invalid, this will make a huge difference to their rights.

If you do not make a valid Will, and your estate is to be divided among your spouse and your children, the word "children" here only includes blood or adopted children, and not step-children.

Also consider the beneficiary designations you've made on your life insurance policies and RRSPs. If you bought those items during your previous marriage, they probably designate your ex-spouse as the beneficiary. Perhaps that's what you still want, or what you are obligated to do as a result of your divorce settlement. In that case you don't have to change anything.

Most people, however, want to update their beneficiary designations to name their current spouse or perhaps the children. Do not assume that your divorce decree or your separation agreement changes those designations, because they do not. In some cases (a minority) the divorce or separation paperwork will specifically refer to a certain policy or account and talk about how it's to be dealt with; most do not. The generic wording of releasing all claims against the other's estate does NOT change beneficiary designations. You'll have to do that yourself if you want to change it.

Guardianship of minor children can also be an issue. You may have two sets of minor children who will likely have two different guardians. When you pass away, the children's other biological parent automatically has a right to custody, so you have to word any guardianship appointments for the children of your first marriage properly. I talked more about this in a post here.

For some people, leaving money in trust for the children of a previous marriage is an issue because they don't want their ex-spouse to have access to that money.

Finally, think about how the Dower Act might affect you. Most provinces in Canada have abolished the Dower Act but it's still in effect (for now, at least) in Alberta. This law gives a married (but not common law) spouse a right to live in the matrimonial home until he or she dies, moves out permanently or signs away that right. This can cause complications for someone with a current spouse who is trying to pass on property to children of a previous marriage.

If you are in, or soon to be in, a second (or subsequent) marriage, I strongly urge you to talk to an experienced estate planning lawyer to have an appropriate Will made. It's not a simple document but if properly done it will definitely save money and headaches for the people left behind after you pass away.

Dower Act can change your plans

Yesterday I met with a client who was in his second marriage. Both he and his wife had children from their first marriages. They agreed verbally that each of them would leave their estates to their respective children.

Unfortunately we ran into a snag that might sound familiar to many people because the situation is not unusual. The client and his wife live in a home that is in his name only. They've always kept it in his name only because their plan is that when the husband passes away, the house will go to his children. The snag is the Dower Act of Alberta.

The Dower Act gives the wife the right to live in the house for the rest of her life. This right arises because they are legally married (the same right does not apply to common law couples) and they live in the house as their "matrimonial home". The husband suggested that in his Will, he would leave the house directly to his kids, thereby avoiding the Dower Act, but that would be ineffective. If he does leave it to his kids, they will only receive the property after her Dower Act rights expire (i.e. when she passes away). Until then they will have to wait.

A person is able to waive his or her rights under the Dower Act. Therefore if this couple really has agreed to the division of property that the client has described, then it would probably be a good idea for the wife to sign a waiver of her rights. In fact, the Dower Act has a regulation that sets out a form for doing so. If a waiver were to be signed, the husband could then make a Will leaving the house to his children.

When I advised the client of his position, he wasn't happy. He hadn't realized there would be a problem. However, I thought it was fortunate that he found out now that his plans wouldn't work, rather than his children finding out after he had passed away.