Estate planning is a topic many of us prefer to postpone. It forces us to confront our own mortality and can feel overwhelmingly complex. However, failing to establish a clear plan can leave behind a legacy of confusion, conflict, and unnecessary financial hardship for your loved ones. A well-drafted will is more than just a legal document; it’s a powerful tool that ensures your wishes are honored and your family is protected. This article will delve into the critical importance of having a will, debunk common misconceptions that lead to procrastination, and explore various estate planning strategies that can safeguard your assets and your family’s future.
“My Situation is Simple”: The Danger of Assumptions
One of the most frequent reasons people give for not having a will is the belief that their affairs are straightforward. “I’m married, we have kids, everything will just go to them, right?” This assumption, while seemingly logical, can lead to devastating consequences.
Consider the story of a widow in her 40s whose husband suddenly passed away without a will. They had what they considered a “simple” family structure: first marriage, one minor child. They assumed all assets would seamlessly transfer to the surviving spouse. However, under the laws of intestacy (dying without a will), the reality was far more complicated. The widow was forced to share the estate with her minor son. Because a minor cannot legally own significant assets, a government agency, the Office of the Public Guardian and Trustee, had to be involved to manage the child’s inheritance, even with a living parent. This led to a seven-year ordeal involving significant legal and tax fees, further complicated by US assets. When the son turns 18, he will receive a substantial lump sum, a situation that could have been structured more prudently with a trust within a will to manage the funds until he is older. A simple will could have prevented this entire protracted and costly nightmare.
The complexities multiply in less “traditional” family structures. Take the case of a couple who lived together for over three decades and had a religious marriage ceremony that was not legally recognized in Ontario because of a prior, unresolved divorce. They handwrote a joint will, known as a holograph will, believing it was a valid way to leave their assets to each other and then to their respective children from previous relationships. Unfortunately, a holograph will is only valid if written entirely in the handwriting of one person; a joint handwritten will is invalid. Now, the children of both partners, some living internationally, are embroiled in a legal dispute over the joint assets, a situation that could have been easily avoided with a professionally drafted will.
“I Don’t Know What to Do”: Overcoming Estate Planning Paralysis
Another common roadblock is feeling overwhelmed by the perceived complexity of one’s own affairs. You might have assets spread internationally, a blended family, or ongoing family disagreements, leading you to believe you need to have all the answers before consulting a lawyer. This is a classic catch-22.
The reality is that a key role of an estate lawyer is to guide you through these complexities. A legal professional can present various options, explain the tax implications of international transfers, and help you structure a plan that is fair and minimizes potential conflict. You don’t need to have a perfect plan in mind; you just need to start the conversation.
This is particularly true for individuals with significant or complex assets, such as business owners or farmers. For these individuals, estate planning can be a multi-year process involving corporate restructuring, tax planning, and navigating intricate property laws. The solution isn’t to wait until every piece is perfectly aligned. The first step is to put a foundational will in place immediately to prevent a worst-case scenario. This “imperfect” will can act as a crucial safety net while the more comprehensive, long-term plan is developed. An imperfect plan is infinitely better than no plan at all.
Similarly, waiting for existing family conflicts to resolve before creating a will is a flawed strategy. A will is a tool to mitigate conflict, not a document to be created only in its absence. A lawyer can help you structure your will in a way that anticipates and addresses potential disputes, making it much harder for disagreements to escalate into costly court battles after you’re gone.
The Pitfalls of “Do-It-Yourself” Estate Planning: The Risks of Joint Ownership
In an attempt to simplify their affairs and avoid probate fees (the tax levied on the value of an estate), many people resort to transferring assets into joint ownership with their children or other family members. While this can seem like a clever strategy, it is fraught with peril and can lead to outcomes you never intended.
When you add someone as a joint owner to your property or bank account, you are giving them legal ownership rights today. This can have several unintended consequences:
- Loss of Control: The new joint owner has a legal claim to the asset. A cautionary tale involves a father who added his daughter as a joint owner on his $2 million home, presumably to avoid probate. Years later, the daughter, viewing herself as a legal co-owner, demanded he sell the house so she could take her million-dollar share. This resulted in a costly and emotionally devastating court battle that shattered their relationship.
- Exposure to Creditors: If the person you add as a joint owner faces financial trouble, divorce, or is sued, your asset could be at risk. Their creditors or a former spouse could make a claim against their share of the property.
- Unintended Inheritance: The principle of “right of survivorship” means that when one joint owner dies, the asset automatically passes to the surviving owner(s). This can inadvertently disinherit other beneficiaries. In one case, a second-marriage couple had joint accounts intended to support the survivor. After one spouse’s health deteriorated, the children from his first marriage began claiming the funds in the joint account were solely his, leading to a dispute between the two sets of children—a conflict that contradicted the parents’ intentions.
A properly drafted will can achieve your goal of transferring assets efficiently while avoiding these risks. For instance, a will can explicitly state that a joint account was established purely for convenience and that the funds are intended to be part of the estate, to be distributed according to the will’s instructions.
Strategies for Effective Estate Planning
A comprehensive estate plan often involves more than just a standard will. Depending on your circumstances, your lawyer might recommend several tools:
- Powers of Attorney: Every adult should have Powers of Attorney for Property and for Personal Care. These documents appoint someone you trust to make financial and healthcare decisions on your behalf if you become incapacitated.1 Without them, your family would need to go through a costly and lengthy court process to be appointed as your guardian.
- Multiple Wills: For business owners, having two wills can be a powerful strategy to reduce probate fees. One will deals with your personal assets and goes through probate. A second, separate will deals specifically with the shares of your private corporation, which can then be transferred to your beneficiaries without incurring the 1.5% probate tax on their value.
- Trusts: Trusts are versatile tools that can be used to manage assets for beneficiaries.
- Testamentary Trusts: These are created within your will and come into effect upon your death. They are commonly used to manage inheritances for minor children, beneficiaries with disabilities, or individuals who may not be equipped to handle a large sum of money.
- Alter Ego Trusts: For individuals over 65, this type of trust allows you to transfer assets into the trust during your lifetime without triggering immediate capital gains tax. The assets in the trust do not form part of your estate upon death and therefore avoid probate fees.
- Family Trusts: These can be used for more complex business succession and income-splitting strategies, though they come with annual filing requirements and costs.
Creating a will is a profound act of care for your family. It replaces uncertainty with clarity, prevents unnecessary disputes, and ensures the assets you’ve worked a lifetime to build are passed on according to your wishes. Don’t let misconceptions or procrastination put your family’s future at risk. Consult with a qualified professional to create a plan that provides security and peace of mind for you and for them.
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Article courtesy of Vladimir Nikitin of Perley-Robertson, Hill & McDougall LLP
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