Don Archi's Law Blog
Why you should make estate planning a priority in 2013
I came across this article by Leanne Kaufman printed recently in the Financial Post and I thought that it would be of interest to my clients. It sets out some of the reasons why it is important to contact your lawyer when there are major changes in your life. Take positive steps to insure that your estate is transferred exactly as you want. You worked hard to accumulate your wealth and to build your estate. Don’t make assumptions. Don’t leave anything to chance. Don’t rely completely on advice given to you by a neighbour. See a professional and get your will properly drafted. The cost of having a lawyer prepare your will properly is a sound investment.
Why you should make estate planning a priority in 2013
In the spirit of the New Year and its focus on resolutions, you may want to consider making estate planning one of your priorities for 2013. Professionals in my industry see the unfortunate results of failing to make this planning a priority all too often. Here are some of the most common:
Failing to consider the effect of a second (or subsequent) marriage In most Canadian provinces (but not all), marriage generally revokes a will made prior to the marriage. If you haven’t created a new will after your marriage, there may be unintended consequences to your estate, including potentially creating an intestacy (meaning dying without a valid will). In this situation, your estate might not be distributed according to your wishes, but rather in accordance with relevant legislation.
This could have several possible consequences. It could mean that the new spouse is now entitled to receive a “preferential share” of the estate, and children will share the balance, whether that was the intention or not. Any planning that was done in the revoked (or original) will regarding gifts to friends, other family members or charities will not be effective. Further, any trusts that were created for children, to delay their inheritance until a later age in adulthood, would not be effective and children would be entitled to receive their full share upon reaching age of majority.
Failing to understand the impact of separation/divorce Although marriage may automatically revoke a will, separation may not. Merely separating from a spouse (without any separation agreement or formal divorce) may not impact any entitlements that the former spouse was given under either a will or a beneficiary designation. This could have significant impact on a new relationship and any perceived entitlements of a new partner or family arising from that relationship. It is therefore very important to seek advice about your estate planning as quickly as possible following a marriage or relationship breakdown.
Failing to reconcile a will with beneficiary designations Often, beneficiary designations are made on plans such as RRSPs/RRIFS and TFSAs, and life insurance policies at the time when the plans or policies are created, and then are not revisited, or even thought about again. Circumstances that were present at the time the designation was made may change dramatically with life events (such as marriage, separation, common law partnerships, and the birth of children). The amounts designated in these plans, which may seem insignificant at the time the designations are made, are generally intended to grow and by the time of death, may form the majority of a person’s assets.
If the designations have not been considered and specifically revoked or modified at the time wills are created or updated, the original designations may stand when the person passes away.
This may lead to unintended consequences when it is too late to do anything about it. Assets with beneficiary designations must therefore be kept top of mind when reviewing and updating estate plans and on major life events (including relationship breakdown), even if the amounts or assets seem insignificant.
Otherwise, the individuals who are supposed to benefit under the will may not receive all of the assets intended for them.
Pension plans and registered plans that were funded with the proceeds from contributions to a pension plan have special rules that often give priority to a spouse or common-law partner. These assets in particular should be “handled with care.”
Failing to understand the consequences of making accounts joint While making an account joint with a family member may seem like a convenient way to allow ease of administration of an elderly parent’s financial affairs, or may be touted as an effective way of avoiding probate fees on the asset, the legal effect of this kind of change is not often fully considered by account holders.
One scenario that may have unexpected consequences is making an account “joint with right of survivorship” with another person. The effect of this may be that on the death of one account holder, the surviving holder is given full ownership rights on the account and no portion of it goes to the estate of the deceased holder. (Based on Supreme Court of Canada decisions a few years ago, whether or not this rule applies will depend on the circumstances and the relationship between the account holders. The rule does not apply in the province of Quebec.)
This may have the effect of giving access to the full amount of the account to one family member to the exclusion of others, even if it is was not the intention of the account holder who passed away. The asset may also be unwittingly exposed to the creditors of the joint holder or to their own marriage breakdown.
As a result, careful consideration should be given and advice obtained prior to proceeding with making an account joint for convenience or probate-avoidance purposes.
Failing to face the issue until it’s too late One of the greatest mistakes we can all make is to ignore estate planning entirely and assume that it will all be taken care of by whoever survives us (or worse, only turn our minds to it at the eleventh hour when our focus should be elsewhere).
It will relieve stress for all parties if these matters are dealt with while everyone is still healthy and capable. It is equally important to make sure the plans are communicated so that there are no unexpected surprises for executors, beneficiaries, or those not included, at the time of death.
Leanne Kaufman is vice-president, professional practice group, RBC Wealth Management and author of The Executor’s Handbook, available at www.cch.ca/RBCEXEC.
|Monday, January 7, 2013