With many couples, one or both spouses have had previous marriages or common law relationships. For many reasons, these couples’ estate planning instructions are not usually the traditional “all to my spouse with a gift over to my issue”.
Spousal trusts are a popular solution, particularly when one or both spouses have children from previous marriages. However, there has been (at least in our practice) an increase in the number of couples who see themselves as financially independent from their spouses, and who wish to leave their spouses nothing, or very little of their estates, preferring to leave their assets directly to their children. Clients have not always considered the potential family law consequences of this type of estate plan. Although the prudent course is to recommend that clients speak with family lawyers and consider entering into a marriage contract to ensure that their estate planning goals are respected, and to make it clear that the surviving spouse can not elect for an equalization of net family property, this suggestion is not always taken seriously (which is surprising, particularly where both clients have had previous failed marriages).
With no marriage contract in place, the surviving spouse may change his or her mind, and choose to elect to receive an equalization of net family property. An additional possibility that people often overlook is that the surviving spouse may become incapable of managing property upon the death of the first spouse. In that scenario, the surviving spouse would not be able to decide whether to elect to take under the will or by way of equalization – the substitute decision maker would decide, who may be not as inclined as their parent (for instance) to “forgo” their statutory rights. There is also the concern that in some circumstances, the substitute decision maker acting in the best interests of the now incapable spouse, there may be little choice but to elect an equalization of net family property.
Lesson Learned: We must remain ever vigilant of the interrelation of the family law regime in the estate planning world, and the potential effect of the Family Law Act on clients’ estate plans.