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Estate Planning for Common Law Partners in Canada: A Guide

If you are in a common-law relationship in Canada (or want to be) and have yet to consider estate planning, it’s time. While building a life together might be your main focus, preparing for unforeseen events is equally important. Unlike married couples, common-law partners don’t have automatic inheritance rights.

Proper planning might pass your assets to your loved ones as you intend and your wishes for your children’s well-being should be considered.

Let’s get into it.

What Makes a Relationship ‘Common Law’? Definition & Rules

Canada recognizes common-law partnerships when considering taxation, benefits and estate planning.

However, there’s no single, nationwide definition of a common-law relationship. Each province and territory sets its own rules regarding what constitutes “common law.”

While provincial details vary, there are two key common law partner Canada requirements that most jurisdictions look at to determine status:

  • Length of Cohabitation: Couples must demonstrate they have lived together continuously for a significant period. A minimum of one year is typical, although certain provinces may have slightly different timeframes.
  • Nature of the Relationship: It’s not just about living under the same roof. A “conjugal” relationship implies a partnership akin to marriage. That involves a shared life, emotional commitment and possibly intermingled finances.

Proving your common-law status is crucial to uphold your rights and wishes for your assets and loved ones to be respected.

That’s where the Cohabitation Agreement also helps.

A cohabitation agreement is a legal document that outlines how a couple intends to manage their affairs during their relationship and upon separation or death.

These agreements can be beneficial for common-law couples when:

  • Protecting Individual Assets: A cohabitation agreement can clarify ownership and prevent future disputes if you enter a relationship with significant assets (like a house or business).
  • Handling Complex Family Situations: In blended families where children from previous relationships are involved, an agreement can ensure everyone is treated fairly and potential conflicts are reduced.

Estate Planning Must-Haves for Common-Law Couples

Data shows common law couples are on the rise in Canada. If you’re a couple here’s a breakdown of the crucial legal tools that help you protect your partner, your assets, and your future together:

Wills: Your Non-Negotiable

A will is non-negotiable for common-law couples for several reasons.
It allows you to:

  • Dictate how your assets will be distributed, ensuring your partner and, if desired, other beneficiaries (e.g., children from previous relationships) are provided for as you intend.
  • Appoint guardians for any minor children you have together, ensuring their care is entrusted to someone you choose and their inheritance is managed responsibly.

Without a will, provincial laws determine asset division, which might not match your wishes and could lead to unintended consequences. A will grants you control over your legacy and protects your loved ones.

It is important to note that although there may be an agreement between partners when their wills are drafted, there is nothing preventing one of the parties from changing their will after the death of the other. This is particularly important to keep in mind where there are children, or other dependents, from previous relationships.

Powers of Attorney: Preparation for the Unexpected

Powers of attorney (POA) come in two crucial types for common-law couples:

  • Property POA: It designates someone you trust to manage your finances and property if you become mentally or physically incapacitated. Without this, your partner may not have the legal authority to make necessary decisions on your behalf.
  • Personal Care POA: It lets you appoint someone to make healthcare and personal well-being decisions if you can’t do so yourself. That provides peace of mind, knowing your wishes will be respected if a medical crisis arises.

Both types of POA are vital as they ensure someone you trust can step in and handle your affairs if circumstances prevent you from doing so.

Trusts: Specialized Tools for Complex Situations

Trusts offer a flexible way for common-law couples to manage and protect their assets. In certain circumstances, trusts can provide significant benefits such as:

  • Asset Protection: Placing assets in a trust can shield them from potential creditors or other claims.
  • Tax Minimization: You can strategically use trusts to reduce the tax burden on your estate.
  • Care for Dependents: You can use trusts to provide ongoing financial support for dependents with disabilities or special needs.

Setting up and managing trusts can be complex, so getting advice from an estate planning lawyer is crucial to determine if they’re the right solution for your situation.

How to Safeguard the Assets You Share

Understanding how you own your assets is the first step in protecting what you’ve built together as a common-law couple. There are two main types of ownership to consider:

  1. Joint Tenancy with Right of Survivorship: This is common for homes or shared bank accounts. If one partner dies, the other automatically inherits the entire asset, offering simplicity and ease of ownership transfer.
  2. Tenancy in Common: It means each partner owns a distinct asset share, which allows for more flexibility. If one partner dies, their share doesn’t automatically pass to the other – it follows the instructions in their will or provincial laws if there’s no will. Tenancy in common might be preferable when significant pre-existing assets are involved or if there are concerns about future financial entanglements.

Wills are essential regardless of how you structure your ownership. Even with joint tenancy, they cover assets not held jointly and provide clarity for any beneficiaries beyond your partner.

Importantly, it will protect children from previous relationships and allow you to address complex asset distribution wishes.

Estate Planning Tip: Review beneficiaries on insurance policies and investments. Naming your partner directly there can streamline asset transfer and potentially save on taxes.

What Happens if Your Common-Law Partner Dies Without a Will?

Statistics show nearly 58% of Canadians don’t have a will. That’s not a good look because the absence of a will can create significant complications and stress when a common-law partner dies (aka “Intestacy”). Unlike married spouses, common-law partners don’t automatically inherit a set share of their partner’s estate if there’s no will.

Each province has intestate succession laws that dictate how assets are distributed in such situations.

These laws consider various factors, including the length of the relationship, whether children are involved and the deceased’s family structure.

Don’t assume that provincial laws will automatically consider you as a common-law partner and grant you property rights; they might not align with your wishes or provide adequate protection for your future.

Potential Consequences of Intestacy:

  • Unintended Beneficiaries: Assets might go to the deceased’s blood relatives (parents, siblings) even if they weren’t close to the couple. That could leave you financially vulnerable, especially if you depend financially on your partner.
  • Legal Challenges: Establishing your common-law status and claiming inheritance rights can involve a lengthy and expensive legal process.
  • Impact on Children: If you have children together, their inheritance could be delayed or significantly reduced, causing unnecessary hardship.

Dividing Property: How Does it Work?

Dividing property after the death of a common-law partner can be intricate, especially without proper planning. Here are a few key factors that can create complications:

  • Ownership Structure: How assets were owned (joint tenancy vs. tenancy in common) impacts how they are treated upon a partner’s death. With joint tenancy, the surviving partner usually inherits the entire asset automatically. And with tenancy in common, the deceased partner’s share is directed according to their will or provincial laws if there isn’t one.
  • Ontario Laws: When a common-law partner dies without a will, intestacy laws dictate how assets are distributed. These laws can vary, creating uncertainty and potentially leading to outcomes that don’t reflect the couple’s wishes. In Ontario, there is no obligation to split property acquired while living together.
  • Blended Families: Property division becomes even more sensitive when either partner has children from previous relationships. Fairness is essential to avoid familial rifts and potential legal disputes. This highlights the importance of wills for common-law couples with blended families.

Your Children’s Future: What You Must Consider

As a common-law partner, estate planning becomes even more crucial when children are involved. With a will, your children might inherit the way you intend. Provincial laws governing intestate estates might favour blood relatives over your partner, or unintentionally exclude children from previous relationships. A will ensures that everyone you love is provided for, avoiding unnecessary financial hardship and potential familial conflicts.

Additionally, a will allows you to name guardians for your minor children, ensuring they’ll be cared for by people you trust if something happens to you and your partner.
Don’t leave your children’s future to chance; a thoughtfully crafted estate plan offers them the protection and security they deserve.

Epstein & Associates: Your Partners for a Secure Future

Estate planning for common-law couples can be complex, but it doesn’t have to be overwhelming. At Epstein & Associates, we understand the unique challenges you face. Our experienced team is ready to guide you through every step, ensuring your assets, loved ones and wishes are protected.

Contact Epstein & Associates today, and let us help you build a plan that brings you peace of mind.