November is Make a Will Month through the Ontario Bar Association. For the month of November 2023, Sherman Law LLP is pleased to offer 10% off all Estate Planning services, including a comprehensive intake meeting with a lawyer to discuss your Estate Planning requirements and to the drafting and preparing of related documents.
At Sherman Law LLP, We are Kitchener Estate Planning lawyers with over 40 years of firm experience who can help you to create a comprehensive estate plan that meets all of your goals and protects your legacy.
Estate planning is the process of arranging your affairs to ensure that at your death your savings, wealth, assets, and legacy will pass on to your beneficiaries in accordance with your wishes and without unnecessary tax consequences. This process can involve the drafting of Wills, Trusts, Powers of Attorney, and general estate management.
To learn more about Estate Planning please click on our practise page.
People often avoid contemplating their own mortality and neglect to plan for the distribution of their assets when they die. Many put off to tomorrow planning that should be done today. Unfortunately, everyone will eventually pass away and often with considerable assets. In light of how our daily lives have changed as a result of COVID-19, we are receiving numerous requests from clients to review or draft comprehensive estate plans. This blog will discuss the top 5 reasons why you should consider having a Will prepared or updated.
It can often cost more to administer an estate where there was no Will than an estate with a Will and proper estate plan. Therefore, estate planning is an important aspect of organizing your personal affairs that should not be ignored. Our team of highly skilled Kitchener estate planning lawyers recognizes that estate planning can be a very personal matter that requires unique personal attention to ensure that we implement a comprehensive estate plan that respects all of your wishes, while minimizing the potential for family disputes.
Estate planning is the process of arranging your affairs to ensure that at your death your savings and assets will pass on to your beneficiaries in accordance with your wishes and without unnecessary tax consequences. This process can involve the drafting of Wills, Trusts, Powers of Attorney, and general estate management. Whether you are just starting out in your career and require a basic Will and Powers of Attorney or you have considerable assets and require a more detailed estate plan, our Kitchener estate planning lawyers are ready to assist you in meeting your goals and protecting your legacy. We offer reasonable flat rate packages for many of our estate planning services and discounted rates for spouses who wish to create similar estate plans.
If you believe that you could benefit from assistance in Estate Planning, we invite you to contact an experienced lawyer at our firm for more information about how we may be of assistance.
Aubrey Sherman is the managing partner at Sherman Law LLP in Kitchener, Ontario. His practice focuses on family law, estate planning, and estate administration. The team at Sherman Law LLP in Waterloo Region has over 40 years of experience providing clients with creative and innovative solutions. If you wish to discuss your family law or estate planning matter in further detail, please contact our office to arrange for a consultation. We can be reached by phone at 519-884-0034 or by email.
The Family Law Act, R.S.O. 1990, c. F.3 (“FLA”) defines a category of property known as “excluded property” that is excluded from the equalization of a spouse’s net family property upon separation and marriage breakdown, which can also include the death of a married spouse if the surviving spouse chooses an election under the FLA.
If a spouse owns property on the date of marriage breakdown that qualifies as excluded property, the value of that excluded property is excluded from the total calculation of that spouse’s net family property subject to equalization. The most common category of excluded property is property that a spouse acquires by way of a gift or inheritance from a third person during the marriage, income from such a gift or inheritance if expressly excluded by the donor, and property into which such a gift or inheritance can be traced including damages, proceeds, a right to proceeds of a life insurance policy, and unadjusted pensionable earnings under the Canada Pension Plan.
Let’s apply this scenario to a real life situation. Paul is married to Mandy and he receives an inheritance of $350,000 during the marriage and the Will expressly excludes income on the inheritance. Paul decides to invest the inheritance in a separate account to which no other funds are contributed, and the income is reinvested each year to the exclusion of his spouse, Mandy. Paul decides to use a portion of the funds to buy a sports car, which is registered in his name alone. Paul and Mandy subsequently separate. On the date of the marriage breakdown, Paul continues to own the sports car and the investment account has grown to $495,000. The value of the investment account is excluded from Paul’s calculation of net family property, as is the value of the sports car because it is traceable to the inheritance, and it was acquired with the excluded inheritance funds.
The outcome of the above example would be markedly different absent a marriage contract if a matrimonial home is involved. If a matrimonial home is acquired by Paul by way of gift or inheritance during the marriage, it will not automatically qualify as excluded property. Similarly, if property that is otherwise excluded property in accordance with the FLA is used to acquire a matrimonial home that Paul and Mandy ordinarily occupy as a family residence, it is no longer excluded property.
Using the above example, if Paul takes the $350,000 inheritance and makes a lump sum payment against the mortgage on his matrimonial home, the $350,000 contribution is no longer excluded property and is subject to equalization with Mandy because he used the inheritance to pay off a mortgage on a matrimonial home and therefore lost his right for exclusion of this portion of the inheritance.
For illustration, if Paul inherited a cottage property on Lake Joseph from his father that was used seasonally by spouse, Mandy and his family during the marriage, notwithstanding the fact that the cottage was inherited during the marriage, it would not automatically be excluded property because it was occupied by Paul and Mandy as a matrimonial home. In the FLA, you can have more than one matrimonial home.
The concept of excluded property in the FLA has some flexibility built into its application. A further category of excluded property in the FLA is provided at paragraph 6 of subsection 4(2), whereby property that “the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property” can be excluded. This flexibility permits spouses to enter into a marriage contract to exclude property from equalization that would otherwise be subject to equalization, such as a matrimonial home.
Returning to our case with Paul, let’s assume Paul anticipated receiving the cottage as part of his inheritance, and further that Paul anticipated using the cash portion of his inheritance to either acquire a matrimonial home or pay down the mortgage. Paul and Mandy could enter into a marriage contract that specifically maintains excluded property status for both the cottage and any portion of the inheritance that is traced into a matrimonial home. This is a common motivation for clients choosing the advantage of entering into a marriage contact, especially as housing prices continue to rise in Waterloo Region and couples are relying on family wealth to finance home purchases. A marriage contract is beneficial documents for those entering into marriage, but especially helpful for those in blended families who wish to ensure that property is excluded both upon marriage breakdown and in estate planning.
Aubrey Sherman is the managing partner at Sherman Law LLP in Kitchener, Ontario. His practice focuses on family law, estate planning, and estate administration. The team at Sherman Law LLP in Waterloo Region has over 40 years of experience providing clients with creative and innovative solutions. If you wish to discuss your family law or estate planning matter in further detail, please contact our office to arrange for a consultation. We can be reached by phone at 519-884-0034 or by email.
A marriage contract can often be an essential component of estate planning. Often, the need for this contract and related discussion arises during a consultation with a client when the children of the first or second generation in a successful small family business begin to marry and/or establish families of their own, particularly where those children are also beneficiaries of a discretionary family trust that holds common shares in the family business. Those generations that contributed to the family wealth often come to require our services with the goal to protect assets from claims under the Family Law Act, R.S.O. 1990, c. F.3 (“FLA”), in the event of a marriage breakdown by the spouses of subsequent generations.
The treatment of the family home is often a central consideration when considering the appropriateness for entering into a marriage contract. If a family home is a “matrimonial home” for purposes of the FLA, it will be treated differently than other property if there is an equalization of net family property in the event of marriage breakdown. A “matrimonial home” is any property in which one of the spouses has an interest that is ordinarily occupied by the spouses as their family residence at the time of separation. There can be more than one matrimonial home. For example, if the spouses jointly own a primary home and one spouse also owns a vacation property such as a cottage, each property is a matrimonial home provided the other components of the definition are met. Seasonal use of a recreational property such as a cottage will usually qualify as “ordinary occupation” for this purpose.
When married spouses separate or when one spouse dies, either spouse (or the surviving spouse in the case of the death of a spouse), can make a claim for an “equalization of net family property”. The equalization is effected through a combination of a cash payment and/or asset transfer, known as an “equalization payment”, from the spouse who had the greater increase in net family property during the marriage to the spouse with the lesser increase in net family property during the marriage. The equalization payment equalizes the increase in value of property during the marriage, but it does not physically divide property. The amount of the equalization payment is 50% of the difference between the two changes in net family property, often referred to as net worth. For example, if Tom has an increase in net worth of $200,000 and Sally has an increase in net worth of $70,000, Tom makes an equalization payment to Sally of $65,000, which is 50% of the difference between $200,000 and $70,000.
A noteworthy exception to the general rule is when a matrimonial home is brought into the marriage and also owned on the date of separation. In this circumstance, the FLA does not permit a deduction from net family property for the value of the matrimonial home on the date of marriage, effectively equalizing the equity on the date of separation, as opposed to the increase in the equity during the marriage.
Let’s apply this reasoning to an actual situation. Assume Bob owns a home worth $1 million on the date of marriage, and it is a matrimonial home. Bob and Shirley also have investments of $100,000 on the date of marriage. Neither spouse has debts. Accordingly, Bob has a net family property of $1.1 million on the date of marriage and Shirley has net family property of $100,000 on the date of marriage. Bob and Shirley separate after 8 years of marriage. Bob owns the same matrimonial home as on the date of marriage, but it is now worth $1.6 million. Each spouse’s investments have grown to $200,000. Neither Bob nor Shirley has any debts. Therefore, Bob has net family property of $1.8 million on the date of separation, while Shirley has net family property of $200,000 on the date of separation. The growth in the value of Bob’s net family property is $700,000, while the growth in Shirley’s net family property is $100,000.
If the matrimonial home was treated the same as any other property, Bob would owe Shirley an equalization payment of $300,000, being 50% of the difference between $700,000 and $100,000. However, because Bob owned the same matrimonial home on both the date of marriage and the date of separation, its value on the date of marriage is not deducted. That means Bob has net family property of $1.7 million, as opposed to $700,000, and in fact owes an equalization payment to Shirley of $800,000 as opposed to $300,000. It is worth noting that if Bob had sold the original home after the date of marriage and the spouses were living in a different matrimonial home on the date of separation, the date of marriage deduction for the value of the original home would be permitted, and the equalization payment would be $300,000.
These differences in outcomes illustrated in the above example may seem unfair, especially to a spouse who is bringing a previously owned home into the marriage. Addressing the imbalance of how the home will be valued and divided upon marriage breakdown is often one of the central reasons for a party to decide the necessity of entering into a marriage contract as part of estate planning particularly for blended families or those entering into subsequent marriages.
Aubrey Sherman is the managing partner at Sherman Law LLP in Kitchener, Ontario. His practice focuses on family law, estate planning, and estate administration. The team at Sherman Law LLP in Waterloo Region has over 40 years of experience providing clients with creative and innovative solutions. If you wish to discuss your family law or estate planning matter in further detail, please contact our office to arrange for a consultation. We can be reached by phone at 519-884-0034 or by email.
