Estate Planning: Why Me?

by Nora Dunn on 15 January 2008 10 comments
Photo: Orangeacid

A friend of mine mourned the loss of her husband, who died of a heart attack at age 56. Although most people understand their mortality by the time they reach their fifties, this man didn't believe in insurance or planning for the future, and hence died with no coverage, very few assets, and no will.

For years prior to his death, my friend fought a losing battle with her husband, encouraging - even begging - him to consider a will, powers of attorney, and insurance. His never-changing reply was "What do I care? I'll be dead anyway. Everything will go to you and that's that".

But amidst her grieving, as she rifled through the last of his belongings, filed his last tax return, and consolidated his finances into hers, she was left with nothing but bills. Lawyer's fees, accountant's fees, taxes, probate, funeral bills, a mountain of debts he wasn't forthcoming about, and a whopping tax bill reflecting years of mismanagement of his assets and taxes - all adding up to a substantial sum of money. And with each new bill, actual resentment towards her late husband brewed.
After three years of toiling to resolve his estate (which appeared uncomplicated at the onset) and paying off the ensuing bills which ended up being over $100,000, my friend wanted a divorce from her late husband.

I cannot stress enough how important it is for everybody to consider their estate plan and to prepare a will. Even young single people can benefit from having a will - or at least their parents and siblings can, especially if there is any sort of division of loyalty among family members. Governmental legislation has a formula they apply for the division of assets (and debts) in the event of there being no will, but it certainly is not ideal. And even the simplest of estates can become muddled in confusion and resentment if not dealt with properly.
For example: You have a spouse and two small children. Legislation will designate the first "x" dollars of your estate value to your spouse, and then will divide the remainder equally between your spouse and children. The children's inheritances will be paid into a court system and held until they are 18 years old, with many restrictions as to how that money can be used prior to then.

What is your Estate?

Your estate is everything you own when you die; from the shoes on your feet, to your retirement accounts, to insurance policies.

What makes up an Estate Plan?

Things that should be reviewed as part of an estate plan include wills, powers of attorney (although they come into effect while you are still alive but incapacitated), and insurance policies.
For business owners, a succession plan is crucial. Otherwise, your employees, customers, and suppliers will be left "holding the ball" if you disappear unexpectedly. Your children or spouse may lose out on inheriting something they could be interested in, as there are muddy waters around corporate succession if there isn't anything documented in the charter papers about it. Also, if you have a business partner and they die without properly planning their own estate, their share of the business could be left to an uninterested and incompetent spouse by default. Or worse - their share of the business goes to minor child to be held in trust. In both cases your own share of the business is in jeopardy.

Okay, I want to start planning. What next?

Firstly, you should take a snapshot of your current estate situation; consolidating information into one easy document or notebook. Things to document include:

  • Bank account information (bank addresses, account numbers, etc)
  • Security Deposit Box location
  • Financial assets (institution, account numbers, approx value)
  • Financial debts (institution, account numbers, approx value)
  • All other assets (car, house, jewellery, incidentals)
  • Insurance policies (location of policy, type, company, policy number, amount)
  • Memberships (gyms, auto association, miscellaneous - your executor needs to know this information in order to cancel services or gain access to automatic insurance benefits)
  • Pension information (company, amount, survival benefits, who to contact)
  • Location of powers of attorney
  • Numbers of people (friends and family) to be notified
  • Contact info for lawyers, accountants, financial planners, and other key team members

Ultimately this information will be kept with your will when you have one, but for the meantime it is a launching pad for you to start planning your estate.

Planning Your Estate

Once you have an idea of what you own, you can formulate a plan for how you would like it to be doled out to those you love. Sometimes it's easy: "everything goes to my spouse". But even the simplest of situations can become complicated: what if your spouse goes with or before you? Determine not only the beneficiaries, but also the contingent beneficiaries for everything.
Consider who your executor will be. (And of course, then decide who the contingent executor will be).
It is common practice not to choose parents as executors, as more often than not they don't succeed their children. Instead, choose somebody close to your age or younger. (For people in their 20s and 30s without a spouse or siblings, you could initially nominate a parent, but may eventually want to designate your lawyer to the task.

See a Professional

Many people are enticed by the simplicity of a hand-written will, or using one of the numerous inexpensive legal will kits that are widely available. I cannot discourage this more! These boilerplate home-made wills are fraught with terminology that is vague, leaving loopholes for potential ugliness to crop up when your loved ones need it the least. There are improperly drafted wills that have literally torn families apart, or left them in waiting for literally decades for resolution due to a clause that had to go to the courts for interpretation.
The best way to avoid this can of worms is to accept the short-term pain of using a lawyer for the long-term peace of mind of having an iron clad will in place. Most lawyers will also keep a copy of the will in their offices, so if yours gets lost or burns in a fire, there is always an accessible copy.

I Don't Want to Plan my Will Now! It's Gonna Change…

Yup. If life rolls the way it should, it will toss you lots of curve balls that mean changes to your will. Moving in with new spouses, booting old spouses out, serious family quarrels (and not just spats - I mean serious!), and close friendships are all legitimate reasons to review your estate plan.
The good news is that you don't have to completely redraft your will to change small clauses or beneficiaries; more often than not an addendum at the end will suffice, thus minimizing legal fees and complications.

I Don't Have any Family. Why Bother?

If you die and don't have any family members at all who the government can contact to wrap up your estate, then the government gets to keep everything.
Now I'm not anti-establishment or anything, but why not instead make sure that your favourite charity, community sports league, or even quirky café down the street benefits instead?

Although morbid in nature, estate planning doesn't have to be a morbid chore. In fact, envisioning how the future for your family, friends, and favourite charities could be simplified or improved with a properly planned estate can actually be a comfort - especially once it is in place and you can forget about it.

We're here to live life now; but let's not forget where we came from and where we're going.

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Myscha Theriault's picture

Another nice primer article, Nora.

Guest's picture
Shan-Oh

This is a great how-to article. I am recently married, and my husband and I spent the first year getting our finances together before we went to talk to a lawyer about wills and estate planning. Wrong order!

Wish we'd started on our wills first, now we'll be redoing a significant portion of our beneficiary forms, and some of our financial plans. I even found out that my husband was part owner in a small business - that I had never heard of. He'd forgotten to tell me about it because he had invested in it so long ago.

Thought anyone reading this article might also recognize the added bonus of hunting up all your financial records, and having all that info in one place - perfect time to set your financial house in order :)

lghbob's picture
lghbob

Thanks Nora, for the reminder.   I agree with just about everything you wrote, and would agree that final requests delayed, are final requests denied.

The only point where my personal opinion differs is about the "professional" assistance... (and even then, I'm not at all sure of how I feel about it).

Here's the thing... in the area where I live, a simple will looks to cost about $1,000.  While I appreciate the expertise required in somewhat complex wills and testaments, after looking over the software that is now available for under $50, it surely seems that a straightforward "do it yourself will" can work for many people.  The extensive Q & A's provided, cover the most common situations, and, provide guidance on those cases where there are complex financial structures and "webs" of more sophisticated  tax issues involved.

After going thru a complete doityourself program, I developed an "update" to my professionally prepared will from some years ago, and then compared it to the lawyers document.   I am not a lawyer, but after comparing the two wills, It surely looks as if they are essentially the same. (the computer program updated some wording to comply with recent laws).

So, here's a thought.   By "doing" your own will, you get more involved in picking up the pieces that an individual lawyer might miss.  (I found the questions to cover more bases than my "personal lawyer" ever did, and while the final result was the same, I was exposed to more possibilities from the program... more things to consider, if my personal status were to change.)

I have not decided whether to change my current will by myself, using the computer program or to go back to a lawyer.  (Like all frugaleers, I hate to part with money on stuff I can do myself).  In any case, by going thru the details I certainly feel more aware of the variables, than I did when I had turned the project over to the professional.  

Wonder if you've tried the "do it yourself" programs, and what you think of the breadth of issues that they cover. 

 

my opinion only

Nora Dunn's picture

Thank you for your feedback and shared experience!

I have indeed tried my hand at the "do it yourself" will kits, and found that the language wasn't quite the same as the professional will my lawyer drafted. There were a few clauses that were overlooked (that in fact will be covered in my next article on wills! Stay tuned...), that can make a big difference. 

Also, I found that a simple Will & the two Powers of Attorney only cost me $200, so I'm sorry that your lawyer isn't competitive in that way. I too would balk at a $1,000 bill! Is there possibly a less expensive lawyer in your area that could address this? I do know that lawyer's fees have unbelievable ranges depending on the size and specialties of the firm. 

Guest's picture
Mike K

For $1000 I was able to have a revocable trust set up for both my wife and I (a seperate trust for each, each with co-trusteeship) and a pour-over will. Remember, a will still leaves your loved ones exposed to probate and estate taxes!

Guest's picture

Here is a useful article on Estate planning law in Ontario Canada and the effects of not having a last will and testament that was written by a Toronto Wills Lawyer- Toronto Wills Lawyer Discusses Why You Need a Will

Guest's picture

You’re exactly right Nora! We have to protect our family now no matter where we are in our lives. Emergency or loss can happen to all of us whether we are prepared or not. It is always good advice to see a professional to help you plan for the future; but let’s face it not all of us can afford this approach to estate planning. There are many online services that claim to offer as much as a professional advisor does, however I am slightly doubtful of their credibility.

I am the social marketing manager for the start-up business, Confidant. Confidant (www.beconfidant.com) is an online service which organizes and manages a family’s critical information in one spot. Confidant gives secure access to family members or friends in case of emergency or loss. It is a great and confidential way to prepare your finances and to protect yourself and your family.

Guest's picture
blanche gregory

If a person is not worried about relationships going bad, and complete trust is assumed, what can we do with our asset allocation now to ensure that all estate issues, transfers, costs are minimal upon death?

For example...What is the best way to prevent probate taxes, and income tax burdens for family in your estate planning?

If my adult children (2) are the beneficiaries of term deposits, GIC's, RRSP's, etc, will they avoid all these costs after my death ? What if I transfer ownership of liquid assets to their names now, or is there no taxes later with these items anyways.

Can I transfer my home, in name, to my children now, so that they are not burdened with capital gains issues from my estate later.

I think this fully explains the ideal burden free scenario I am
wondering about.

Your assistance is appreciated. Thanks.

Nora Dunn's picture

@Blanche Gregory - Thank you for the comment, and you are indeed asking the right questions. I also see that you are from Canada (you gave yourself away with the reference to GICs and RRSPs)!

There is a lot I could contribute to your query:

  • Yes, you can transfer ownership to your kids now, but once it's theirs, it's theirs. (Eg: be careful of giving them the house if you live in it). Depending on the asset, the sale price matters too (sometimes gifts can't be arranged).
  • RRSPs can't be given to kids early, and there are tax consequences to your estate when you pass away with RRSPs and no spouse. Even with the kids marked as direct beneficiaries, your estate will have to pay tax on the full amount of the RRSPs as income on your final tax return. If there are no assets to cover this liability off, your kids will have to pay.
  • You may be able to better structure your finances with an insured annuity , but without your specific details, I can't say for sure.

You are thinking along the right lines....now you need to see a financial planner, who can tailor an estate plan for you. I hope this helps a little!

Guest's picture

I like the question and objections format. These are the same type of questions that clients ask all the time. This is helpful.