Estate Planning for Common Law Couples: Avoiding Pitfalls, Planning for Protection

17 Dec Estate Planning for Common Law Couples: Avoiding Pitfalls, Planning for Protection

According to recent data from Statistics Canada[1], more and more Canadians are living in common law relationships, either prior to choosing marriage or as a more permanent arrangement. And an Angus Reid poll found that more than half of Canadians simply feel that marriage isn’t necessary.[2]

Today, people choose to live in common law relationships for a variety of reasons. They may be young couples trying out sharing a life before getting married. They may be divorced adults supporting children from previous relationships, with assets they would prefer to keep separate. Or they may be older retirees, with uneven assets built up after a lifetime, spending their golden years together.

Whatever the reason for the choice, the truth is that there are differences between the legal rights of married couples and common law couples. So if you’re choosing a common law relationship, it’s important to be aware of the challenges and plan your estate carefully.

Buying Real Estate

For many couples, the first big step is to purchase a home together. But buying a home isn’t simple, and it’s important to take all the factors into account. Consider:

• If only one partner is listed as the owner, the common law spouse won’t inherit the home automatically the way a married spouse would.
• If both partners are owners, they can live in the home under joint tenancy. This means that when one partner dies, the other inherits the home outright and becomes the sole owner of the home. (Generally preferred for couples that don’t have children from previous relationships.)
• If both partners are owners, they can live in the home under joint tenancy in common. This means each partner owns a 50% share in the home. Each partner can leave his or her share to any children, leaving the children as co-owners with the surviving partner. If you choose to go this route, it’s a good idea to include a provision for how long the surviving partner can stay in the house. (Generally preferred for couples that have children from previous relationships.)

Saving for the Future

Another component of estate planning includes registered and non-registered savings plans. These plans are especially important because of the tax savings associated with them – if you leave them to the right beneficiary. Consider:

• In an RRSP, a common law spouse named as a beneficiary can inherit the money without incurring tax benefits. A child named as a beneficiary will need to pay taxes upon the death of the parent.
• In a TFSA, a common law spouse or a child named as a beneficiary will need to pay taxes on the money, while a married spouse would not have to pay those taxes.
• For a non-registered account, the money will have to go through the estate unless the policy is part of an insurance product.

Creating a Will

Without a will, your estate will be divided according to provincial law – regardless of your marital status. But unlike the married spouse, the common law spouse is not guaranteed anything under that provincial law. If you’re in a common law relationship, a formal will and estate plan is the only way to protect your common law partner.

To learn more about preparing your estate, contact us.

[1] https://www150.statcan.gc.ca/n1/daily-quotidien/190501/dq190501b-eng.htm

[2] http://angusreid.org/marriage-trends-canada/

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.