In our role as corporate executor and agent, we often see the same scenario – a long term marriage where the husband works outside of the home while his wife left the work-force to raise their children – followed by the husband’s unexpected death. At the time of passing, their financial assets and liabilities are predominately in the husband’s name with his wife having limited access to her own financial resources – things like credit cards are connected to his.
When reading the Will, it seems everything passes to the wife – unfortunately this can take time. When financial institutions are notified of the passing, bank and brokerage accounts are frozen until documents can be produced, and the husband’s credit cards are cancelled together with her companion card. If probate is required, the legal process can take months even for the simplest of estates. This puts the widow in the unfortunate position of having limited access to funds to pay day-to-day expenses and monthly payments such as the mortgage and utilities.
We have found banks can be quite compassionate, but it’s a bit of a hit and miss. If the husband has funds or secured credit facilities, the bank will usually allow for the disbursement of death payments such as funeral costs, and possibly some home expenses. Probate can be an issue – on a $2M estate, probate can be $28,000 (at $14/$1,000). Your bank may advance probate funds immediately prior to filing, but isn’t their general policy, and would be assessed on a case by case basis.
Then comes the mortgage which typically is approved and supported on a cash flow basis. (Note that there are a few financial institutions that will approve an equity only mortgage). If the mortgage or a line of credit is supported by cash flow, a renewal may not be possible, which could eventually force the liquidation of assets, or worse, the family home.
Ok, we told you about all the problems that are clearly not needed at the worst of times. Unfortunately, solving the mortgage problem is hard to plan for. However, some simple steps could help the survivor buy some time until matters get sorted out. Here are a few simple ideas:
- Each spouse should have a bank account in their sole name with enough funds to last 4 to 6 months.
- If the credit cards are companion, each spouse should get a separate personal card (consider a different financial institution for diversification).
- Life Insurance policies are paid quickly when presented with a Death Certificate (be prepared to ask for about 5 certificates as lots of institutions will be looking for them). Confirm that the named beneficiary is the right person.
- RRSP/RRIF/TFSA – these accounts as well have a named beneficiary that should be confirmed.
- A Joint-Spousal Trust, or other type of trusts set up during one’s lifetime that avoid the whole probate process can be useful tools for the transfer of assets.
There has been a lot written recently about joint survivorship where a joint account and its proceeds pass immediately outside a person’s estate to the survivor without probate or estate administration. This strategy requires legal advice – joint ownership can make things faster and easier – but it could create tax and family law issues with extremely negative consequences.
We have blogged a fair bit in the past about joint partner and alter-ego trusts that can help with probate and other issues. Have a look at https://cvtrustco.com/planning-with-trusts-as-we-age/
The best solution
Again, communication wins the prize – it’s the easy solution to many avoidable problems. Have a discussion about financial assets and obligations so that both spouses are well informed and know what things are and where. If simple changes will help, make them early, long before there is a problem. We know this sounds a bit crass, but how about walking through a dry run – you will be amazed about the things that pop up.
So, this ends our 3rd quarter blog. Looking forward to blogging you around year end.