Might we want to rethink spousal joint ownership?
A young wife and mother consulted with me recently.
She and her husband have children together. There are no stepchildren. This is not a blended family.
The standard estate plan is to arrange their affairs so that when one of them dies, everything ends up in the hands of the other without the need for an expensive and time-consuming probate process.
All assets are owned jointly, in a way that the one who dies first simply disappears from ownership leaving the survivor as the sole owner.
Registered investments that cannot be jointly owned, i.e. RRSPs and TFSAs, have each other named as beneficiaries.
The young wife posed a question to me: 鈥淗ow can I ensure my kids eventually end up with my estate?鈥�
She was doing what lawyers are supposed to do. She was thinking about contingencies.
If she dies first and everything ends up in the hands of her husband, she has lost complete control over the wealth she has helped create.
They鈥檙e young yet. In their thirties.
She鈥檚 not coming to me today to get her affairs in order in case she dies 50 years from now. She鈥檚 planning for the possibility that she drops dead now, in her 30s.
Yes, unlikely. Very unlikely. But it鈥檚 precisely because of that unlikely outcome that she鈥檚 consulting with me.
So we must seriously consider what would happen if that unlikely outcome were to occur.
There鈥檚 an incredibly high likelihood that what she would wish for her husband would occur. He will find another life partner.
That new life partner might or might not have children.
Regardless, they are at an age when they might have more children together.
Can she count on her husband to ensure that their wealth, which she helped create, and which he will be bringing into that new relationship, will end up going to her children?
Will he ensure there鈥檚 a prenuptial or cohabitation agreement that protects their wealth in case that new relationship fails?
Will he make an estate plan with his new spouse that ties up the wealth he brings into the relationship to eventually go to their children in case he dies before his new spouse?
Whatever he does, he can鈥檛 protect that wealth completely. He will be accruing new family law obligations that will increase the longer the new relationship progresses.
And any new children will dilute what goes to the kids from his relationship with his first wife.
Keep in mind that those new children will have additional inheritance sources from her husband鈥檚 new spouse鈥檚 side of that new family.
When you work through the very likely fact pattern that will emerge if the very contingency my client is planning for occurs, the traditional estate plan becomes inadequate.
Consider an alternative.
A young family鈥檚 most significant asset is likely their home, with most of their discretionary income going to diligently paying off their mortgage.
My client and her husband could agree to own that shared asset in a way that it doesn鈥檛 end up 100% in the survivor鈥檚 hands, vulnerable to claims by the survivor鈥檚 new spouse and children.
Instead, they could agree that if one of them dies, the 50% share owned by the deceased spouse can be used by the survivor for their lifetime, but then it goes to their children.
This outcome could be achieved while still avoiding probate fees and expenses.
It鈥檚 not fun to think about our mortality. If we鈥檙e going to go there, though, we might as well think realistically and make a plan that fits the likely contingencies.
Paul Hergott
Lawyer Paul Hergott began writing as a columnist in January 2007. Achieving Justice, based on Paul鈥檚 personal injury practice at the time, focused on injury claims and road safety. It was published weekly for 13 陆 years until July 2020, when his busy legal practice no longer left time for writing.
Paul was able to pick up writing again in January 2024, After transitioning his practice to estate administration and management.
Paul鈥檚 intention is to write primarily about end of life and estate related matters, but he is very easily distracted by other topics.
You are encouraged to contact Paul directly at paul@hlaw.ca with legal questions and issues you would like him to write about.
