If You Have Young Children, Please Make a Will

I am dealing with the estate of a man who died leaving a common-law wife and very young child. I am not going to get into the facts of this particular estate, but it got me thinking about how much simpler and better it would have been if he had left a professionally drawn will.

Let’s take a hypothetical situation. A lady dies. She has a husband, and two children, ages 2 and 4. She and her husband kept the house, worth $450,000 in her sole name. She had a mortgage, but the mortgage was life insured. She had some investments in her sole name worth $101,000, and a Registered Retirement Savings Plan worth $70,000 in which she designated her husband as the beneficiary. She and her family lived in British Columbia.

I realize that the majority of couples in British Columbia hold their principle residences in joint tenancies, but this is not always the case. Sometimes, one of them inherits the property from a parent, or they think it safer to hold the property in just one name.

What happens if the lady in our fact pattern dies without a will?

Because she designated her husband as the beneficiaries of the Registered Retirement Savings Plan, the funds will go to her husband, and will not be included in her estate.

If the husband wishes to handle the administration of the estate, he will have to apply to court to be appointed as the administrator. The court may require that he get a bond from an insurance company pursuant to section 16, of the Estate Administration Act, which will be costly, to protect the interests of the children and any unpaid creditors.

Under British Columbia law, the husband will be entitled to the contents of their home, and a life estate in the house. In other words he will be entitled to live in the house, or collect rents from the house, for his life. He can at anytime release his life interest.

The husband will also be entitled to the first $65,000 out of the estate and one-third of the residue. The children will be entitled to share two-thirds of the residue. These provisions are set out in Part 10 of the Estate Administration Act.

If the husband keeps his life interest in the house, he will be entitled to $77,000 of the investments. The children will be entitled to $12,000 each now. (I am ignoring expenses and debts in this illustration.) The children will also each be entitled to a one-third interest in the house which they will receive on the husband's death, or earlier if he releases his life estate.

The children’s shares of the investments are payable to the Public Guardian and Trustee, pursuant to section 75 of the Estate Administration Act. The Public Guardian and Trustee will charge fees for his services, and if the husband wishes access to the funds for the benefit of the children he will have to apply to the Office of the Public Guardian and Trustee.

Now, supposing the husband wishes to move. He would like to sell the home, and use the capital to buy a new residence for himself and the children to live in. If he releases his life estate in the house, then he is entitled to one-third of the proceeds of the house, which will be $150,000 (minus one-third of commissions and other costs). The other $300,000 (or thereabouts) will be paid to the Public Guardian and Trustee to hold in trust for the children. Possibly the husband could make some arrangements with the Public Guardian and Trustee to use those funds in the purchase of the new house, on the basis that the children will continue to have an interest in the new house.

The children will be entitled to take control of their shares of their mother’s estate at the age of 19. This may not be bad, if we are talking about $12,000. But if they receive substantially more than that, they might not be mature enough to manage their money, and may squander it within a few years.

What if this lady had made a Will? We can’t of course be sure of what provisions she would have made in her will. But she might have done something like this:

1. She appoints here husband as the executor with a close relative she trusts as an alternate executor;
2. She leaves here estate to her husband if he outlives her;
3. If her husband dies before her, she divides her estate between her children. She has her lawyer draw the will so that if either child is under the age of say 25, the trustee holds and manages that child’s share until the child attains the age of 25. The trustee could use each child’s funds to make payments to or for the benefit of that child, for example paying for the child’s education, before the child reaches 25. In other words, there are funds available for the children, but they don’t control the funds until they are more mature.

If she had made these provisions in a will, the husband would inherit everything outright, and would then have flexibility in using the assets to meet his and the children’s needs. If he had died before her, or if we modify our example so that she is a divorced mother with two children, then the children’s share would be managed by someone she knew and trusted until they reach a more mature age than 19.

There are of course many other ways she could structure her estate plan depending on her wishes and circumstances. But a carefully thought out plan, made with legal advice, is invariably going to be better than relying on the intestacy provisions of the Estate Administration Act.

Please note that if you live outside of British Columbia, the law where you live dealing with how intestate estates are disbritubed will be different. For those who live in British Columbia, there are proposals to change the distribution scheme on an intestacy.