There’s a good chance it’s the single most valuable asset you own. It doesn’t take much imagination to think your heirs are going to want it after you are gone.
The fight for your home is likely to be all the more messy in this day and age as second marriages become more mainstream, leaving adult children to battle with step parents for an asset that may have doubled in value over the last decade.
A Statistic Canada report released in September found a higher divorce rate has led to a greater likelihood of a second marriage and, with that chance of remarriage, comes the major issue of deciding on who owns the matrimonial home.
“The family unit is changing,” says Raymond Leclair, vice-president of public affairs at LAWPRO (Lawyers’ Professional Indemnity Company). “The issue becomes then how do people own their home.”
Traditionally, a couple owned their home together and when one parent died, it went to the other spouse. When the remaining parent died, all that wealth went to the kids.
With that “natural progression,” says Mr. Leclair, you are creating a potentially explosive situation with second spouses.
For instance, stick with the old standard of a joint tenancy agreement where the surviving spouse gets the house, where does that leave your kids if that’s your second spouse? “In joint tenancy, you own an equal undivided tenancy and the survivor gets the full title,” says Mr. Leclair. “You have to think where this is going.”
For a couple on their second marriage, a better option may be a tenancy-in-common ownership solution where the couple choose the ownership split on a property. Each parent can then have their share of the property go to whoever they want, including children from a previous marriage.
“There is nothing that obligates you to keep a will forever,” says Mr. Leclair, about agreements spouses may make to pass on wealth to children from another marriage. A surviving spouse who got the whole house can update their will later on, he notes. “All of the sudden, the second person’s children are disinherited from their natural father or mother’s assets.
The situation could become even more contentious if the deceased spouse is the one who paid for the house or did most of the upgrades with the surviving spouse inheriting it all. And the rules apply to everything set up in joint tenancy, including the family cottage or vacation home.
But you can retain control of your home from the grave if you carefully set up ownership well in advance of your death.
Leanne Kaufman, vice-president of the professional practice group at RBC Wealth Management, said fights over the house are mitigated when potential beneficiaries are considered elsewhere as part of estate planning.
She says anything jointly held with right of survivorship will go directly to the other person — a tactic people use to avoid probate fees. “Someone has told them probate fees are bad and joint accounts are good but they may not understand the impact,” says Ms. Kaufman. “In the grand scheme of things [probate] is not that bad.”
An issue for anybody should be taking care of their spouse after their death, so other problems are not created.
“In Ontario, there are provisions that on your death your spouse says I don’t want what I was given under the will, I want a family property claim,” says Ms. Kaufman, about a surviving spouse going after the home. “It’s the same claim someone can make if they had separated from their [spouse] six months before [their death].”
You also have consider whether you want to create a situation where your grief-stricken spouse is forced to leave the family home just to clean up an estate.
“I recommend that the surviving partner be given a right for a finite period of time, say two years, to find replacement living arrangements, that allows the separation of the children from the surviving step-parent. That usually is best for everyone,” said Paul Hood, author of Estate Planning for the Blended Family.
Mr. Hood said you need consider such things as maintenance, taxes and other costs associated with a home. “Otherwise, it can be a war. These types of arrangements can be very problematic unless the deceased partner planned well and left enough liquid assets to allow the surviving partner to pay the regular upkeep and real estate taxes,” he says.
Jason Heath, a fee-based certified financial planner at Objective Financial Partners Inc., says he’s had real life examples where people think they are leaving money to their children but in effect they’ve set up a joint ownership situation with their spouse.
“I had to sit down with a client and tell them ‘what you think happens in your will is actually the opposite of what really happens.’ They were on their second marriage. There are a lot of mistakes people make about thinking assets will pass through their will,” says Mr. Heath.
The rising value of houses in Canada has made all of this more prevalent today. “It’s amazing we have people who live on government pensions but they have a $1-million home and a $1-million cottage,” says Mr. Heath.