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Remarriages are common but can also make estate planning much more complex. For example, what happens when you decide certain assets should go to your children and not your new spouse? In many provinces, inheritance laws don’t make that straightforward. Francois Desmarais, Tax and Estate Planner at TD Wealth, joins Kim Parlee to discuss some ways to ensure your wishes are met.
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- Remarriages are common, but can really make estate planning a little more complex. Francois Desmarais is a tax and estate planner at TD Wealth. He's here for today's Ask MoneyTalk. Francois, thank you for joining us. The question today is, "My spouse moved into my home once we were married. I want to pass on my home to my kids from a previous marriage once I die. So how can I ensure that happens?" Francois, over to you.
- Thank you, Kim. I believe it is very important to state this in the will. You know, executing your will is something very important. You want to be the one deciding who is going to receive the assets you have. And when we're talking about the home in the situation you described, where you may have children from a first marriage and then you have a second spouse, the second spouse is moving in, and you want to make sure that this individual will be authorized to live in the house when you pass away. But you also want to make sure that the house is going to be transferred to your children when she or he passes away.
So that becomes tricky sometimes with clients, where you may have husbands saying, oh yeah, I'm just going to leave the house to my second wife, and I'm trusting her that she is going to bequeath the house to my children of the first marriage. That may happen. You see, that may happen. Second wife is going to sign the will in which she bequeaths the house to the children of the first marriage of the husband. Unfortunately, it may not happen. And we're not talking here about bad faith, we're just talking about life, you see?
- And I've heard so many stories, as well, Francois, so you're right, life happens. Things happen. And clarity matters so much when you're trying to actually put these things together. So let's talk about that. How do you provide that clarity? How do you provide that plan?
- In fact, again, having this in the will and making sure it is really clear. And I would say here that some things we often see would be that the house is bequeathed to the children, but there is a right of use for the second spouse. You see, like she's granted authority, or permission, I should say, to live in the house for a certain period of time. And that's a very nice way to do it. You see, here, legislation may vary from one province to the other on how this should be called, but at the end, it's the same thing. It's a right for-- in Quebec, that would be a right of use, right of use of the house.
When there are some difficulties, would be first with who's paying the expenses. And I've seen so many times in wills where it's drafted regular expenses or normal expenses. What is a normal expense? I guess hydro and municipal taxes is a given, but what if, after 10 years, the house needs a new roof? Is that the normal expenses or not? Sometimes I'm looking at documents, and I'm just looking for a definition, you see, in the document.
And unfortunately, lawyers, notaries would not take the time to put a definition of what kind of expenses should be taken-- who should be paying for which expense. And I think this should be made clear in the will. That's certainly the first thing, where the second one is how long this right is going to last. And many times, we see, oh, that's until he or she is passing away.
I've seen one file where the individual that had the right to stay in the house, and the right was until he or she would pass away. Years before passing away, this individual became incapacitated, had to move to a nursing home. Now you're stuck with a house that you cannot sell because the person is incapacitated, cannot renounce to the right.
And I challenge you, try to ensure a vacant house. My god, if you're able to do that, you just buy a lottery ticket because it's very difficult. Like, companies don't want to insure vacant house. And if they agree to do it, the premium is going to be really, really high.
- What about a trust? Is a trust, setting up some sort of trust, an option for that type of thing?
- I like this one. You see, I like creating a trust. A testamentary trust is solid. In Quebec, in Canada, for many, many years, we've created trusts. We know how it works. We know about taxation. We know about taxation of trusts. It's solid, and it has no impact on your life. In fact, I often say date of birth of the testamentary trust is your date of death. So it's easy to remember.
So clients would tell me, yeah, but while I'm alive, why do I have this trust? No, no, testamentary trust is going to kick in the day you've passed away. And the goal of that is to transfer some assets to this trust-- house, money. And then you keep control. You keep control from the grave, you see? After you've passed away, you still have control over the assets. And the trust can receive real estate and money investments. And in your will, you would give instructions to a trustee who would be in charge of administering this trust.
There's a cost associated to having in place a testamentary trust. Not significant, your will is going-- legal fees, because your will is going to be a bit more complicated. But on a yearly basis, the cost associated to fees charged by the trustee, trust accounting, a testamentary trust is a taxpayer, means that-- need to file income tax returns. So there's a cost associated to this.
Having said that, I would sometimes make the link with an insurance. Like if you subscribe to an insurance, there's a premium that has to be paid. So when you create a trust, it's going to make sure that your assets are going to be transferred the way you want and you're keeping control.
- Francois, great information. Thanks so much for joining us.
- It was a pleasure.
- Francois Desmarais. And if you have any questions, you'd like to ask MoneyTalk a question, you can send an email to moneytalk@td.com with Ask MoneyTalk in the subject line. Ask your question. We'll find the right person to answer it for you. And then go to moneytalkgo.com, you'll find it posted.
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- Thank you, Kim. I believe it is very important to state this in the will. You know, executing your will is something very important. You want to be the one deciding who is going to receive the assets you have. And when we're talking about the home in the situation you described, where you may have children from a first marriage and then you have a second spouse, the second spouse is moving in, and you want to make sure that this individual will be authorized to live in the house when you pass away. But you also want to make sure that the house is going to be transferred to your children when she or he passes away.
So that becomes tricky sometimes with clients, where you may have husbands saying, oh yeah, I'm just going to leave the house to my second wife, and I'm trusting her that she is going to bequeath the house to my children of the first marriage. That may happen. You see, that may happen. Second wife is going to sign the will in which she bequeaths the house to the children of the first marriage of the husband. Unfortunately, it may not happen. And we're not talking here about bad faith, we're just talking about life, you see?
- And I've heard so many stories, as well, Francois, so you're right, life happens. Things happen. And clarity matters so much when you're trying to actually put these things together. So let's talk about that. How do you provide that clarity? How do you provide that plan?
- In fact, again, having this in the will and making sure it is really clear. And I would say here that some things we often see would be that the house is bequeathed to the children, but there is a right of use for the second spouse. You see, like she's granted authority, or permission, I should say, to live in the house for a certain period of time. And that's a very nice way to do it. You see, here, legislation may vary from one province to the other on how this should be called, but at the end, it's the same thing. It's a right for-- in Quebec, that would be a right of use, right of use of the house.
When there are some difficulties, would be first with who's paying the expenses. And I've seen so many times in wills where it's drafted regular expenses or normal expenses. What is a normal expense? I guess hydro and municipal taxes is a given, but what if, after 10 years, the house needs a new roof? Is that the normal expenses or not? Sometimes I'm looking at documents, and I'm just looking for a definition, you see, in the document.
And unfortunately, lawyers, notaries would not take the time to put a definition of what kind of expenses should be taken-- who should be paying for which expense. And I think this should be made clear in the will. That's certainly the first thing, where the second one is how long this right is going to last. And many times, we see, oh, that's until he or she is passing away.
I've seen one file where the individual that had the right to stay in the house, and the right was until he or she would pass away. Years before passing away, this individual became incapacitated, had to move to a nursing home. Now you're stuck with a house that you cannot sell because the person is incapacitated, cannot renounce to the right.
And I challenge you, try to ensure a vacant house. My god, if you're able to do that, you just buy a lottery ticket because it's very difficult. Like, companies don't want to insure vacant house. And if they agree to do it, the premium is going to be really, really high.
- What about a trust? Is a trust, setting up some sort of trust, an option for that type of thing?
- I like this one. You see, I like creating a trust. A testamentary trust is solid. In Quebec, in Canada, for many, many years, we've created trusts. We know how it works. We know about taxation. We know about taxation of trusts. It's solid, and it has no impact on your life. In fact, I often say date of birth of the testamentary trust is your date of death. So it's easy to remember.
So clients would tell me, yeah, but while I'm alive, why do I have this trust? No, no, testamentary trust is going to kick in the day you've passed away. And the goal of that is to transfer some assets to this trust-- house, money. And then you keep control. You keep control from the grave, you see? After you've passed away, you still have control over the assets. And the trust can receive real estate and money investments. And in your will, you would give instructions to a trustee who would be in charge of administering this trust.
There's a cost associated to having in place a testamentary trust. Not significant, your will is going-- legal fees, because your will is going to be a bit more complicated. But on a yearly basis, the cost associated to fees charged by the trustee, trust accounting, a testamentary trust is a taxpayer, means that-- need to file income tax returns. So there's a cost associated to this.
Having said that, I would sometimes make the link with an insurance. Like if you subscribe to an insurance, there's a premium that has to be paid. So when you create a trust, it's going to make sure that your assets are going to be transferred the way you want and you're keeping control.
- Francois, great information. Thanks so much for joining us.
- It was a pleasure.
- Francois Desmarais. And if you have any questions, you'd like to ask MoneyTalk a question, you can send an email to moneytalk@td.com with Ask MoneyTalk in the subject line. Ask your question. We'll find the right person to answer it for you. And then go to moneytalkgo.com, you'll find it posted.
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