The top five no-nos of estate planning

  • November 1, 2014

A comprehensive estate plan provides for the transfer of assets to designated heirs after a person’s death as well as makes provisions for management of a person’s affairs in the event they are incapable of doing so themselves while still alive. An estate plan ensures your wishes are carried out. But it must be created properly. Below Amanda J. Stacey, a partner in the Private Client Services and Charity and Not-for- Profit groups at Miller Thomson LLP., reviews some of the most common estate planning mistakes and pitfalls. 

1. Not having a Will 

It is surprising the number of people I meet who have not made a will and do not understand the implications for their estate and heirs if they die without one. When an individual dies without a will, they are said to have died intestate and they forgo the opportunity to decide what happens to their estate. 

In Ontario, the distribution of the estate of an individual who dies intestate is governed by the Succession Law Reform Act. It sets out rules that often come as a surprise to individuals. For example, most married individuals assume their estate passes to their spouse on death. While this is true for people without children, those with children would see their estate divided as follows: 

  • Their spouse will receive the first $200,000 of the estate; 
  • If you have one child, your spouse and child will share the balance of your estate equally 
  • If you have two or more children, your spouse will receive 1/3 of the balance of your estate and your children will split the rest 

Additionally, if any of your children are under 18, their share of the estate will be held by The Office of the Children’s Lawyer until they turn 18. 

The Act also sets out who will inherit your estate if you do not have a spouse or children. If you die without a will and have no living heirs, your estate will “escheat to the Crown,” which means it will be paid to the Ontario government. 

For the purposes of these rules, a spouse does not include a common-law spouse. If you have a common-law spouse and die without a will, they will not be entitled to inherit from your estate. 

2. Failing to update your will after a change in life circumstances 

It is important to revisit your will periodically to ensure it is up to date and reflects your wishes. If you experience a major life event — marriage, the birth of a child or grandchild, the death of a family member or divorce — you should review your will and speak with your lawyer about any updates. 

For instance, in Ontario marriage revokes a will. However, a will that specifically states it is made in contemplation of marriage, is not revoked by a subsequent marriage. In contrast, divorce does not generally revoke a will (although it will revoke certain provisions concerning a former spouse). 

At the birth of a child, you should ensure your will provides for your child, with appropriate trust provisions to govern while he or she is a minor. If a beneficiary passes away, you will want to ensure that your will sets out an appropriate alternate, if desired. 

3. Engaging in excessive probate planning 

In Ontario, when a will is submitted to the court for probate, a fee is payable that is equal to approximately 1.5 per cent of the fair market value of your estate on the date of your death. In recent years, it has become quite popular to attempt to avoid having to pay most or all of this fee. 

One of the more common ways to “avoid” probate is to place your assets into joint tenancy with another person. When you own an asset jointly with right of survivorship with another person, when you die, the asset will pass to the surviving owner directly. In other words, the asset will not form part of your estate, will not be dealt with under your will, and thus will not be subject to probate. 

It is common for spouses to own property jointly. As long as you intend for your spouse to inherit the asset that you own jointly, this is a perfectly acceptable method of property ownership and a good way to avoid probate. 

Problems arise where assets are held jointly with others, such as children, other relatives, friends and neighbours, either as a means of avoiding probate or for convenience, or both. Where you do not intend that person to inherit the particular asset on your death, this can be problematic and will usually result in the beneficiaries of your estate fighting over who is entitled to the asset. The cost of this type of fight is usually greater than any probate fees saved. 

It’s a good idea to speak with an estate planning lawyer who can help determine how much your estate might pay in probate fees, and how those fees can be reduced, including through the use of dual wills and alter ego/joint partner trusts. 

4. Failing to put in place Powers of Attorney 

In Ontario there are two types of power of attorney: powers of attorney for personal care and continuing powers of attorney for property. 

In a power of attorney for personal care, the grantor names one or more individuals to act as their attorney in the event that the grantor becomes incapable of making personal care decisions. These include decisions about health care, living arrangements, consent to treatment, nutrition. 

In a power of attorney for property, the grantor names one or more individuals to act as their attorney in the event that the grantor becomes incapable of managing property. 

It is important to consider who you will name as your attorneys for personal care and property. With respect to personal care, thought should be given to naming individuals who know you well and who will respect your wishes with respect to living arrangements, health care and end-of-life decision-making. 

A power of attorney for property is a powerful document. Subject to any conditions or restrictions that you might set out in the document, it gives your attorneys the right to do anything with your property that you can do, except make a new will or change your beneficiary designations. You will want to ensure that your attorneys are individuals you trust and are competent to manage your finances. Thought should be given to naming attorneys younger than you. Where you do not have anyone that fits these criteria, you might want to consider retaining the services of a Trust Company. 

It is unfortunately very common for individuals to use joint tenancy in place of a power of attorney for property. Where you need assistance with your finances, it is more appropriate to put in place a power of attorney for property than to place your assets in joint names with the person assisting you. When you place an asset in joint names, subject to evidence to the contrary, you are essentially making a gift of that asset to that individual, which may not be what you intend. 

5. Downplaying the complexity of your personal circumstances 

Most individuals think that they have a “simple estate.” However, citizenship or residency in a foreign jurisdiction, blended families, disabled beneficiaries and complicated asset holdings all result in the need for specialized advice. 

For example, if you or any of your intended heirs are U.S. citizens, you will want to obtain U.S. tax and estate planning advice concerning the implications of leaving property to U.S. citizens. If you are in a second marriage but have children from a first marriage, you will likely want to ensure that on the one hand, your spouse is provided for after your death but on the other hand, your children’s inheritances are protected. It goes without saying that these types of circumstances require expert advice. 

When you meet with your estate planning lawyer, you can expect him or her to ask personal questions about your family situation and finances. He or she will ask you to provide copies of relevant financial documents (such as account statements and insurance policies) and any marriage contracts or separation agreements, if applicable. It is in your best interests to be candid with your lawyer so he or she can provide you with advice that is specifically tailored to your situation. 

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