An Estate Planning Question
When two or more people purchase any property, your realtor or lawyer will ask you how you want your new ownership to be registered. Most couples will choose to register the title in both spouses names and most often as “Joint Tenants”. Registering in “Joint Tenancy” means that if one of the owners dies, the remaining owners acquire the share of the deceased owner automatically. If yours is a first marriage and there is only one set of children to consider, then this is usually the correct choice. If however, yours is a second marriage and you and your spouse have two sets of children to consider, then read on.
Before determining how we should register your new property, we have to consider the effect that the ownership of land will have on the disposition of your estate upon your death. It is, of course, imperative that each spouse have a valid, professionally prepared Will, even though later in this paper I will refer to the fact that Joint Assets cannot be dealt with in a Will.
A Lawyer advising regarding the preparation of a Will must first determine the state of ownership of all assets. In addition to Real Estate, Mobile Homes, Bank Accounts, Term Deposits, Canada Savings Bonds and even cars may be owned or be registered in one of the following ways:
- BOTH NAMES “AS JOINT TENANTS”, in which case if one joint owner dies the surviving spouse will automatically become the owner of the whole of the property. Neither party can do anything with the property in their Will, since the property is deemed by law to pass to the surviving Joint Tenant the second before the death of the other Joint Tenant.
- BOTH NAMES “AS TENANTS IN COMMON”, where each spouse’s one half interest is preserved and can be left to anyone the testator wishes in his or her Will.
- IN THE SINGLE NAME OF ONE OR THE OTHER OF THE SPOUSES, where the owner, as the sole owner of the property, can leave the asset to anyone he or she wishes in a Will.
Registering your property in Joint Tenancy is fine for first marriages with only one set of children. It avoids or partly avoids the cost of Probating an estate since the property transfers automatically to the surviving joint tenant.
Registering the property into Tenancy in Common is the choice for most business transactions where each partner in the property wants to be able to leave his share to his own family, and has no reason to benefit his or her partners by giving them his share automatically. This form of ownership is often better for a second marriage situation with two sets of children.
There is often some pressure in a second marriage to transfer the “family” home into both names to show the new spouse some security. Basically, in a second marriage situation, if you own the asset to start with, leave it in your own name. Providing a spouse with “security” by transferring it into joint tenancy almost always ends up in problems. A better way to provide the security is to prepare a Will and to create a “Life Estate” for the spouse and to ensure that the spouse knows that you have provided adequately for him or her in your will for the use of the property or other assets for his or her lifetime.
In a first marriage where the children are the children of both spouses, most spouses will elect to leave the whole estate to the other and have full confidence that the spouse will look after their children in the future. In a second marriage with two sets of children, the problem becomes more complicated. Most still want to provide fully for the spouse, but recognize that when that spouse dies, there is a problem with where the estate goes. Should it all go to his or her children? Or, can we make some agreement provisions that allow the estate to be split fairly between the two sets of children? Often the two spouses will agree to prepare “crossover” wills and will trust each other not to change them in the future. In such a Will, they each leave the whole estate to the other, and then add a provision that upon the death of the second of them, the estate is to be divided equally between the two sets of children. If the major asset of the family is held jointly, it may be necessary to sever the joint tenancy in order to accomplish this.
Another solution to this problem, which will work only if the estate is large enough, is to split the estate part to the spouse and part to the testator’s children at the death of the first spouse to die. Then the survivor can carry on and leave the whole of his or her estate to his or her children without concern for the other set of children, since they have already received their fair share of their parent’s estate. While in a good marriage the testator wants to provide for the needs of the spouse first and then wishes a fair share of the estate to come back to his or her children, in a second marriage in trouble, there are some more serious consequences.
Where the major assets of the family are held in joint names, the ability to guarantee that the correct result will accrue is gone. For example, where the second marriage is in trouble, and the property is held jointly the following problems can arise. Each party wants to be sure that they get their share out of the house or other asset, and they may come to feel that they can no longer rely upon the spouse to be fair and remember that part of the estate came from the efforts of the other spouse and should eventually be passed on to the children of that spouse. They feel that the spouse is more likely to cut the other set of children out of any future will. The uncertainty is this: If they should die first, the other spouse will “win” the whole asset. On the other hand, if the other spouse dies first, the he or she will “win” the whole asset. It comes down to the luck of the draw!
The solution to the dilemma is to sever the joint tenancy, thereby acknowledging that each spouse is a separate owner of one half of the asset and is free to deal with that asset by Will. The draw back to the solution is that by avoiding the possible loss of the “first to die lottery”, you also avoid the chance to “win” and have to be satisfied that one half is all you are entitled to. It sounds very gruesome, but unfortunately this very situation has occurred over and over.
Another drawback is that in some cases even discussing these issues can cause a further deterioration of the marriage with unpleasant results. If the spouses can recognize the need for a solution and be prepared to cooperate, the correct solution is to combine the severance of the joint tenancy with two wills where each spouse allows the other the use of the testators half of the asset for the rest of the survivor’s life and then the asset reverts to the testator’s children.
By far the best advice here is to plan ahead and make prenuptial or marriage agreements before entering into a second marriage situation. Properly arranged, you can leave yourself in control of your share of the assets and still provide adequately for your spouse if that is your wish.
If you are in a second marriage situation with two sets of children, you owe it to yourself and your spouse to discuss these issues openly and fairly, perhaps including the children on both sides in the discussion, and then both of you should discuss it with your lawyer.
While I have tried to cover these issues properly, this is really just a peek at the matter. It is impossible to cover fully in two or three pages. Furthermore, no printed article can replace a personal interview between your lawyer and both spouses.