Over the next series of blogs, I’ll be discussing the importance of estate planning for dentists. In the first blog, I talked about wealth planning for the single, young, debt-laden dentist. In this blog, I’ll be talking about wealth and estate planning for a young, engaged dentist. They’re starting to pay back their school debts. They’ve bought their first car. And they’ve found the “love of their life” as my wife Paris would say. And there’s a wedding coming up 😉 It’s an exciting time with lots of changes.
But before you dive into this new world, you need to sit back and think long-term. How do I protect myself in case of disaster? What if the marriage doesn’t work? What if I get disabled or die? What if we can’t agree on our finances and where to save / spend / pay down debts? There’s typically a lot of tension when young adults start to discuss these things; but it’s an important conversation to have. So let’s try to structure some of the things that you should be thinking / talking about, shall we?
Couples who are engaged do not have any type of legal or tax benefits per se. They don’t qualify for the various income-splitting strategies available to married couples (e.g. splitting pension with your spouse, income splitting with spouse where you have minor children and one spouse is at home, etc.). Engaged couples who are not common law spouses under the Family Law Act don’t owe each other financial support. And if the couple breaks up, they don’t come under the Equilization of Net Family Property scheme outlined in the Family Law Act, which is discussed in greater detail here and in our eBook “Ontario Dental Law” (which you can download for free by simply clicking on the top right corner of this website).
Insurance Planning for Death and Disability
As with all stages of your life, when you’re engaged, you should have sufficient life and disability insurance. If you’re young and you get it, it should be relatively cheap (assuming you are in good health). If you’re in debt (student loans presumably), you should have enough life insurance to cover the cost of that debt, otherwise your estate won’t be worth much (and your beneficiaries will receive little or nothing). Also, if you’re about to get married, have car loans, have a mortgage, etc., it’s definitely worthwhile to have enough life and disability insurance to wipe out or manage those debts in the event of disaster. You don’t want to leave a loved one having to deal with your disability or death AND be financially struggling at the same time.
RRSP, RRIF, TFSA Designations
If you have registered retirement savings plans, registered retirement income funds, and /or a tax free savings account and you’ve designated a person to be the beneficiary of those assets, then keep in mind that marriage doesn’t automatically revoke those designations. You’ll likely want to update them from time to time. And you should always be thinking of layers and scenarios. In case your fiance / new spouse dies before you, who should receive the RRSP, RRIF, TFSA? Remember: taxes will be paid out of your estate on the value of your RRSP, but not on your TFSA. You may want to have life insurance in place to cover these taxes – particularly if you’re giving your RRSP to someone who is also not getting your life insurance. This helps ensure that your beneficiaries receive their inheritance in a fair / equitable manner (assuming that’s your plan).
Did you know that if you have a Will and then get married, the Will AUTOMATICALLY GETS REVOKED!!! So if you have a Will with specific gifts to people who are NOT your fiance, think about that! There is only one exception: that the Will (or an amendment made to the Will) contemplates that you are getting married and that you intend for the Will to survive the marriage and still be legal and valid. Also, you might want to add something in there to the effect that: if the marriage doesn’t happen, then the gifts to your fiance are null and void. In other words, the gifts to your fiance would be dependent on the marriage taking effect. You’ll likely want to update your Will after you get married so that you can make gifts to your spouse, include your children, make RRSP, RRIF, and TFSA designation, etc. And don’t forget to complete your Powers of Attorney for Property / Finances and one for Personal Care as well.
Prenup: Planning for Divorce
It’s the word a lot of people hate to hear… the word that makes us a little squeamish… but it’s important to say. That’s right: “Prenup”. A Prenuptial Agreement is a TYPE of marriage contract (cohabitation agreements for cohabiting couples and marriage contracts for married couples are other types of marriage contracts) for couples about to get married. The word “Prenuptial” means “Before Marriage”. You get the idea.
These Agreements deal with the parties’ respective rights and obligations during and after their marriage (or on death) and can deal with things like: ownership or division of property, support obligations,the right to direct the education and moral training of children, and any other matter in the settlement of their affairs (s. 53 of the Ontario Family Law Act).
Importantly, a Prenuptial Agreement CANNOT say who will have custody of, or access to, children if the relationship ends. Furthermore, a Prenuptial Agreement cannot prevent a spouse from being in possession of the matrimonial home – irrespective of who owns it! Finally worth mentioning is that a Prenuptial Agreement or Marriage Contract does not need to deal with all rights and obligations concerning the relationship: it can only be concerned with one asset (e.g. a house) or one obligation (e.g. support to one party on termination).
The legal requirements for a Prenuptial Agreement in Ontario include the following:
1.The parties must make full disclosure of their financial assets, liabilities, income and expenses;
2.The contract must be in writing and signed by each party before a witness; and
3.The contract must be entered into voluntarily (i.e. no duress, undue influence, unconscionability,etc.).
It is HIGHLY RECOMMENDED (though not legally required) for the parties to obtain independent legal advice prior to entering into a prenuptial agreement.
What the Courts Have Said About Prenups
The Supreme Court of Canada had this to say in the case of Hartshorne v. Hartshorne, 2004 SCC 22 about Prenups (a case that has been followed and cited with approval by Ontario Courts):
David Mayzel is your legal risk manager. He is a trained courtroom lawyer and has spent many years resolving disputes both in and out of court. He knows how to prepare documents and execute transactions in a way that avoids or mitigates legal risks. He can be reached at 416.528.5280. or email@example.com.
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