Estate Planning and the New Family Law Act
The concept of custody has been abandoned in the FLA, and replaced by a comprehensive list of “parenting responsibilities”. Guardianship encompasses some or all of those responsibilities, and generally, parents are the joint guardians of a child.
For parents who have not separated, the right to appoint of a guardian in a will remains the same. For separated parents, it is best to reach an agreement on the choice of a guardian if one or both parents die. Where that is not possible, it is important to consider what parenting responsibilities the will maker has, either under a court order or a separation agreement, and ensure that those responsibilities are included as part of the guardian appointment in the will.
Where a court must intervene in a guardianship matter, the FLA requires that it consider the wishes of any child 12 years of age or older. It is therefore prudent for a guardian to make inquiries of an older child before deciding on the appointment of a guardian in a will.
An innovation in the FLA is the right to appoint a “standby guardian”. This appointment may be made where a guardian is facing terminal illness or permanent mental incapacity. Unfortunately, no definition for “terminal illness” or “permanent mental incapacity” has been provided in the FLA, and it is uncertain to what extent this new provision will be useful to a guardian facing serious health issues.
An interesting wrinkle here is that, where a standby guardian has been appointed and is acting, he or she will continue to be the child’s guardian on the death of the appointing guardian, unless the appointing guardian revokes the appointment while capable. In other words, the appointment of a standby guardian “trumps” any appointment made in a will.
Gifts to a Minor Child
Historically, a guardian of a child was also the guardian of a child’s estate. Under the FLA, this is no longer the case. With certain exceptions, a child’s guardian is not entitled to receive or give a discharge to an executor or trustee for property to which the child is entitled. Instead, property must be delivered to a trustee authorized to receive it on a child’s behalf.
There are exceptions to this new rule where property:
- Has a value of less than a prescribed amount (currently set at $10,000); or
- Is in a prescribed class (which have not as yet been described; however, the value limit is also restricted to $10,000).
Where an exception applies, property may be delivered directly to:
- The child IF the child has a duty to support another person; or
- A guardian IF he or she has the parenting responsibility of making day-to-day decisions affecting the child.
Unfortunately, there is an exception to the exceptions: where delivery of property with a value of $10,000 or less would result in a child or guardian holding property with an aggregate value of more than that $10,000, the child or guardian is not entitled to receive the property.
To avoid placing an executor in a position of needing to rely upon these new and complex rules, will makers should ensure that a trustee is named to receive any property intended for a minor. Consideration should also be given to the age at which the child should receive the property, and any terms the will maker wishes to impose upon the use of the property while held in trust.
The FLA makes significant changes to the laws relating to matrimonial property division, changes which may have a corresponding significant effect on estate planning.
The two most important changes are the inclusion of common law spouses and the nature of property subject to division upon separation.
Under the old Family Relations Act, only married spouses were entitled to a division of “family assets” upon separation. Family assets included any asset used for a family purpose, as well as certain business assets and trust property.
Under the FLA, married and common law spouses are entitled to share in “family property” upon separation. Family property includes property acquired during the relationship, and any increase in the value of “excluded property”. Excluded property is defined as property brought into the relationship, gifts or inheritances received by a spouse, and property held in some discretionary trusts of which the spouse is a beneficiary.
Where a will-maker is contemplating a marriage or common law relationship, it may be prudent to negotiate a marriage or cohabitation agreement in which the parties “opt out” of the provisions of the FLA. Although a court has power to vary such agreements at a later date, the power is limited by statutory provisions and the common law.
For a will-maker wishing to protect a gift to a beneficiary against potential claims under the FLA, a carefully drafted discretionary trust is likely to afford the best protection. If the gift is not substantial, the exclusion of inheritances in the FLA will provide some protection.
There is a further new consideration for the will-maker wishing to protect a gift to a beneficiary against potential claims, where that beneficiary is in the throes of a new relationship. In addressing division of family property, the FLA uses the date at which the relationship starts to determine what is included and excluded family property. For married spouses, the date of marriage is easily determined. However, for common law spouses, the FLA uses the date the parties began to live together in a marriage-like relationship. This may be difficult to pinpoint. Moreover, there is a conundrum here: if the common relationship lasts less than two years, the parties do not meet the criteria of common law spouses. As a result, for the will-maker, it is difficult to know whether a beneficiary’s new relationship will mature into one caught by the property division provisions of the FLA.
Wills Variation Considerations
The court has the power to vary wills when they do not provide adequately for spouses and children of a will-maker. The court considers both the legal and moral obligations of the will-maker in determining whether adequate provision has been made.
The legal obligations owed to a spouse are generally identified by reference to family laws, and what the spouse would have been entitled to had the relationship ended immediately prior to death.
In light of the significant changes to the property rights of both married and common law spouses in the FLA, we expect there to be a corresponding shift in the manner in which the court determines the legal obligation under the wills variation provisions of the Wills, Estates and Succession Act. It is difficult to predict how this shift will manifest, but a well drafted cohabitation or marriage agreement should minimize the impact on a will-maker’s estate plan.