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First families, second marriages

My wife Carolyn and I had a big fight this week. We were discussing who should be the guardian of our kids if we both die.

That day, Carolyn wasn't thinking about divorce. Murder? Sure. But not divorce. The fact is, many marriages do end in divorce. I want to share an idea with those of you who are in a second marriage.

The problem

Let me paint an all too common picture. You're divorced. You then get remarried. Being wise, you decide to have your will revised after marrying your new spouse. Your new will leaves everything to your new spouse -- after all, leaving assets to your spouse is pretty much standard procedure when a will is prepared. You then pass away before your new spouse does. Your new spouse inherits all your assets.

A few years later, your new spouse dies, and leaves all that he owns (including the assets inherited from you) to his own children. Oh, he leaves your kids from your first marriage something, but not all that you intended. Alternatively, he has good intentions, but simply spends most of the inheritance you left behind, leaving your kids with less than you would have expected.

If you're in a second marriage and you want your kids from your first marriage to eventually inherit what you leave behind, you had better plan for this to happen.

The solution

One solution is the use of a spousal trust. I'm referring to a trust that is created at your death by your will. It's possible to leave your assets to the spousal trust upon your death rather than leaving the assets directly to your surviving spouse.

You'll still get the same tax-free transfer to the spousal trust that you would have had leaving the assets directly to your surviving spouse upon your death. By leaving the assets to a spousal trust, however, you'll be able to control those assets beyond the grave. You can, for example, restrict your spouse's access to the capital of the trust so that the assets you place in the trust will remain there until your spouse dies, at which time the assets will be passed to your children, or dealt with in whatever manner you specify in your will.

Be aware that, under a spousal trust, your spouse must have a right to all the income earned in the trust while they're alive. Further, no one other than your spouse is entitled to the capital of the trust while they're alive (this doesn't mean that you have to give your spouse access to the capital).

Lastly, your spouse will have a right to a proportion (typically half) of your assets upon your death under provincial family law legislation, and so fully restricting your spouse's access to all of your assets by using a trust may be a problem. Speak to a lawyer about this, and to change your will to provide for a spousal trust.

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