7 Deadly Sins of Estate Planning

On December 2nd we hosted a breakfast seminar discussing common errors Canadians make when planning their estates. Keith Masterman LLB, TEP of CI Financial’ s Tax, Retirement and Estate Planning team shared with us his presentation ‘The 7 Deadly Sins Of Estate Planning.’ We thought it would be good to share a summary of the topics discussed to those who were not able to attend, or those who would like a recap. Sin #1 No estate plan/an outdated plan Fact: 56% of adult Canadians do not have a will. Of the Canadians who have a will, 30% only wrote their will when they had a child (source Law Pro 2012). Dying without a will, or intestate, will result in your estate being distributed as per intestacy rules in Ontario’s Succession Law Reform Act, meaning the government, not you, decides how your estate is to be distributed. This could lead to unnecessary costs as well as potentially having your estate distributed in a different manner than you may want. Also, an out-of-date will may not reflect current family or Canadian estate and tax laws. It is recommended that you update your will every 3-5 years or if there is any material change that has occurred in your life. Sin #2 Incorrectly named beneficiaries It is important to clearly name the beneficiaries in your will and take care with the words chosen. As an example, What does “children” mean? Would that include step children or adopted children? Who are “nieces and nephews”? When naming individuals – think about the impact on people included as well as not included? Another consideration is if a charity is named as beneficiary in your will. If the charity is misnamed or merges after the date the will is drafted you want to be sure your executor has the power to choose a suitable replacement. The bottom line is that words matter and ensuring the clarity of what is meant is extremely important. Sin #3 Inappropriate choice of executor Some common errors include the failure to ensure your executor has the time or ability to fulfill the role, failure to consider the impact of the choice of executor on family relations, appointing too many people to act and/or failure to consider geographic limitations on the chosen candidate. When choosing your executor it is important to remember that there are many responsibilities involved with the role. As an example, a family member with young children and an established career may not have the time to give. Including a child that lives out of the country may pose difficulties with their abilities to settle your estate, or possibly even a spouse may be too emotionally impacted to take on the role. Consider your options and choose a person that can ensure your estate gets the attention it will require. Sin #4 Ignoring an asset’s sentimental value Unfortunately, people fight out of emotion over things, not just money. When thinking about your assets, it is important to consider if you have anything with special or sentimental value to leave to members of your family? What steps have you taken to distribute these assets? Do you own an interest in a family business or cottage? How important is it to you for the business or cottage to stay within the family? One technique we recommend is to have a family meeting or individual conversations with your beneficiaries beforehand to see if there is anything specific they would like. You might be holding onto a cottage that only certain family members actually want to look after, or may have a special item from your children’s early years that they really hold dear. Understanding your beneficiaries desires might help when planning making your estate plan and ensure there is no animosity when the estate is being distributed. Sin #5 Lack of care in registered product designations Selecting a beneficiary designation for your registered products (i.e. RRSPs, RRIFs, LIRAs, TFSAs, ect.) can be made within the plans contract or in a will. It’s important to take care that there is consistency between the beneficiary designations you choose in these plans and what is stated within your will. A general revocation clause in a will or a poorly worded clause could revoke all beneficiary designations causing confusion of what your intentions actually are. Sin #6 Inappropriate use of probate minimization tools Probate is a fee charged by the province, based on the size of your estate, to issue a Certificate of Appointment of Estate Trustee. Probate confirms your executor’s authority to act, provides some protection to the executor, may be required by asset administrator(s) to transfer estate assets, and serves to appoint an estate trustee when there is no will or also known as intestacy. Often when creating an estate plan there are several techniques used to avoid or minimize probate. Some of them include named beneficiaries on RRSP/RRIF/TFSA/RPP or locked-in accounts, named beneficiaries on insurance contracts, jointly owned assets with rights of survivorship (but be careful of issues of control and creditor concerns), gifting before death, transfer of assets to an inter vivos trust or the use of multiple wills. It is important to inform yourself of various options and that they are executed correctly. Be sure that while attempting to avoid probate you are not causing other unintended issues through your estate. Also bear in mind that in some cases probate may have some benefits to both your estate and your executor. Sin #7 Failure to consider the words and powers set out in the will Remember that an executor or trustee only has the power provided to act as per what the will or a trust indicates. Ensure you have not handcuffed your trustee, beneficiaries and/or advisors in the words you have chosen. Is the deed broad enough to allow investment in mutual funds? How and when can the beneficiary access capital and if so under what circumstances? It would be a shame if your child was attempting to finish medical school, but cannot afford the education because they are not able to access the funds in your estate until they are married or reach age 30. It is important to take care to clearly express how you want the money to be used, however too many restrictions may impede what your actual intentions are. Conclusion It is wise to prepare and read your estate planning documents carefully. Make sure you understand all the words used and that they comply with your wishes. Ensure you understand the estate plan before suggesting probate minimization and review the plan periodically to ensure beneficiary names are accurate. If you have any questions regarding your own estate plans please feel welcome to open a dialogue with us. Although we are not legal professionals, assisting with the structure of your estate plans is one way we strive to help our clients. Thank you, Andrew & Peter

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