Today’s blog was written by Darren Lund, Associate at Fasken Martineau DuMoulin LLP.
“I would like to leave my sister $10,000, but I don’t want it to be paid until both of us have died.” Drafting solicitors frequently receive some variation on this instruction when drafting wills for spouses. Although it sounds straightforward enough, there are pitfalls to be avoided.
By way of background, gifts to spouses in wills generally include a survivorship condition, so that the surviving spouse must survive the deceased spouse by a specified period of time in order for the gift to vest, usually (but not necessarily) 30 days. This is intended to avoid a double estate administration and potentially double estate administration tax where the second spouse dies within a short period of the first spouse. For example, assume two spouses each have one will that will need to be probated and each leaves the residue of his or her estate to the survivor outright, with an alternate gift to their issue. Spouse A dies first, and Spouse B dies one week later. Absent a survivorship condition, the residue of Spouse A’s estate first passes to Spouse B; Spouse B’s estate is then divided among his or her issue. The assets solely-owned by Spouse A are effectively administered twice, and estate administration tax is paid twice on those assets. If a 30-day survivorship condition is included, Spouse A’s estate is divided among his or her issue in the first instance since Spouse B did not survive Spouse A for 30 days. When Spouse B dies, the assets that were administered as part of Spouse A’s estate do not form part of Spouse B’s estate.
Returning to the legacy scenario, if the spouses intend a legacy to be paid once only on the second death, the same legacy is included in both spouse’s wills with the direction that it be paid if the other spouse predeceases or does not survive the survivorship period. The legacy may precede the residue clause and contain that condition, or it may be included in the alternate gift of residue that applies on the second death. However, to prevent the legacy from being paid twice (i.e. once out of each estate) it is necessary to deal with the scenario where the surviving spouse dies within the survivorship period or the spouses die in circumstances in which it is uncertain who died first. Such a provision is often referred to as a “doubling up” clause. For example, both wills might include a provision which states that a similar legacy appears in the other spouse’s will and it is not the testator’s intention that the legacy be paid more than once. The provision would then direct the executors to consult with the executors of the other spouse’s estate and give them the authority to determine in their discretion from whose estate the legacy will be paid. Another strategy is to include a direction in one of the spouse’s wills that the amount of the legacy be reduced by any amount paid as a legacy to the legatee pursuant to the other spouse’s will.
There is potential for doubling up in two other scenarios that can easily be overlooked. The first is where there are legacies included in the “common disaster” or “failure to vest” clause. In that scenario, it is important to carefully review the terms of the failure to vest clause and any testamentary trusts that may be established under the will. Depending on their terms and the class of beneficiaries, it is possible that the failure to vest clause could take effect more than once. If that was to happen and the failure to vest clause includes legacies, then absent a doubling up provision the legacies would be paid each time.
The second scenario concerns beneficiary designations in a will for life insurance or plan benefits. Whether this is an issue will depend on the particular terms of the designation. Double payment of a legacy could occur where: (a) the beneficiary designation appoints trustees/beneficiaries and directs them to deal with the insurance proceeds/plan benefits on the same terms as the alternate residue clause; (b) the alternate residue clause is incorporated by reference into the designation; and (c) the alternate residue clause includes legacies. In that case, a form of doubling up clause is needed to prevent the legacies from being paid both out of the residue and out of the insurance proceeds/plan benefits.