If clients separate or divorce, you’ll need to make sure their estate plans are updated in a timely manner. Otherwise, unintended results could occur and there could be disputes, or even litigation, later. Here are some of the most common concerns and precautions to take.
In Ontario, under the Succession Law Reform Act (SLRA), gifts to former spouses by will and appointments of former spouses as executors or trustees are automatically revoked upon divorce, unless there is a contrary intention in the will.
A former spouse is deemed to have predeceased the person making the will. But an unintended result can still happen if substitute beneficiaries, executors and trustees have not been named, or if those named are no longer appropriate, such as former in-laws.
The SLRA shouldn’t be relied on as a substitute to updating an estate plan, especially if spouses separate and haven’t divorced — these laws only apply on divorce.
In contrast, generally under Ontario law, divorce (and separation) has no impact on beneficiary designations made in insurance policies and retirement plans, and appointments of former spouses as attorneys for property and personal care, which makes it critical they be reviewed and updated.
Based on a number of court cases, a common problem seems to be that former spouses often neglect to update beneficiary designations on separation and divorce. Registered plans are particularly problematic: failure to change a designation may also result in the deceased’s estate being liable for taxes on those plans, while the former spouse will receive their full value.
Prior to updating beneficiary designations, review the terms of any separation agreement to determine whether a beneficiary change is permissible. There may be express obligations providing for how insurance, for example, is to be maintained and designated.
Powers of Attorney
Generally under Ontario law, divorce (as well as separation) does not revoke appointments of former spouses as attorneys for property or personal care. Problems can occur if a former spouse is unwilling to resign as an attorney, especially if he or she is the sole attorney for property. Difficulties can also arise if both a former spouse and an alternate attorney are unwilling to act. If the grantor can’t execute new powers of attorney due to lack of capacity, it may then be necessary for a person to apply to court to become the court-appointed guardian, which can be time-consuming and costly.
Jointly Owned Property
Property owned jointly with a right of survivorship passes to the surviving former spouse, even if the spouses separate or divorce. This issue is often dealt with in a separation agreement. Joint bank accounts can also pose problems, as one of the former spouses could withdraw funds without the other’s consent. In such circumstances, clients should consider stopping direct deposits (such as paycheques) and obtaining matrimonial advice.
On separation or divorce, examine the terms of any family trusts. Clients may want to make changes if, for example, both spouses were appointed as trustees.