The Top 10 Estate Planning Mistakes

I think it is fair to suggest, that most of us wish to plan our estates to minimize any income tax and probate fees owing upon our passing. Yet, many of us do not seek professional assistance to deal with the various technical income tax, probate planning and "soft family" issues that must be considered when dealing with our estates.  As such, we often end-up eroding our estates because of unanticipated tax obligations and significant legal costs when family members litigate the estate. Today, Neil Milton an estates expert discusses the Top 10 Estate Planning Mistakes he observes in his practice.

The Top 10 Estate Planning Mistakes

By Neil Milton

There are many widely held myths and misconceptions about wills, probate and estates. These myths and misconceptions lead to estate planning mistakes. These mistakes can cause a lot of damage – both to your wallet and to relationships with family members. In this blog we have gathered 10 of most common and yet easily avoided estate planning mistakes.

1. Not Having a Will

The rules for how an estate is divided in Ontario when there is no will (intestate succession) can have some shocking consequences. Remarkably few people are aware that if you die without a will:

• Your common law spouse inherits nothing. Zero. (They might have a claim for support, but that is a very different thing).

• If you are separated but not divorced from a spouse, your legally married, they will inherit the bulk of your estate (The first $200k + a healthy chunk thereafter).

• If you are legally married and not divorced, your parents and siblings get nothing.

• If you have ‘step children’ that you have not legally adopted, they get nothing.

Everyone adult should have a will. If you do not have a will, get one now (74% of Canadians do not have an up-to-date will).

2. Do It Yourself Wills

Sure you can save $500 by doing your own will, but that does not mean you should. You can also do your own dental surgery. For both wills and dental work, the results of DIY are rarely satisfactory and often very expensive to fix.

3. Joint Accounts to Avoid Probate Tax

Do not put your investments or bank accounts in the name of one of your adult children to avoid probate tax without proper advice. You may save probate, but you may trigger significant income tax consequences. In addition, you may create a lot of grief and legal fees to fix the mess where the child whose name you put on the account, claims it for their own and the other children sue.

4. Joint Ownership of Houses to Avoid Probate Tax

Do not put one of your adult children on title to your house (“joint tenancy”) to avoid probate tax without very careful proper planning and documentation. You can create income tax issues and unless you document in writing your intention to give the house as a gift to that child to the exclusion of your other children, you do not save probate tax and you create lots of misery and a legal fee bonanza.

5. Assuming Your children get Along

Do your children really get along? Are they really facing similar financial circumstances and stresses? Many children have serious issues with their siblings. Do not assume that just because they are your children that they trust or work well with each other. This is particularly relevant to your choice of executor.



6. Choosing an Executor who is Not Up to the Job

Being an executor is a difficult job, not an honour. Good executors are a rare breed. They are prudent but decisive, can handle conflict (especially among beneficiaries), are attentive to detail, communicate well, are financially savvy, enjoy accounting and taxes, and must complete, send and receive many letters and forms. An ideal executor is tech savvy, and can scan, print, and email at will.

Your favourite caregiver may be a wonderful person, but that does not mean they will be a good executor. Being an executor is a hard job and you should provide for reasonable compensation (“pay peanuts, get monkeys” applies here). Also consider aging – your executor must be able to perform when the time comes, which may be a long time from now. At the very least, you should have an alternate if the primary choice is unable to act.

I strongly recommend that you consider using a professional to handle this complex job at a pre-agreed fair rate of compensation (which does not have to be a flat 5%).

See Mark's post on the duties of being named an executor for more information.

7. Putting Your Executor in a Conflict of Interest

Enormous trust is placed in an executor, and it is very difficult to force an executor to act at all or decently. If you do not trust someone absolutely to behave quickly, properly and fairly as between all beneficiaries, do not appoint them at all. Too many executors have massive conflicts of interest between their interests and the interests of other beneficiaries, and these conflicts were created by the testator.

For instance, if one child lives with you in your home, and you name that child your executor, they have a clear conflict between their desire to stay in the house as long as they can and to avoid paying rent, versus their obligation to sell the home and distribute the estate. It is unfair to them and the other beneficiaries to put them in this awkward spot – choose an executor without a conflict of interest.

8. Hedging Your Bets With Multiple Executors

Being an executor is a hard enough job without having to chase a co-executor for approval and signatures on everything. In most cases you should choose one person as your primary executor, and name an alternate. Do not name co-executors because you don’t trust one or you are too indecisive to choose between them.

9. Not Thinking Gifts Through or Keeping Them up to Date

Just because someone is your child does not mean that they will outlive you. You need to plan for contingencies. Similarly, if you appoint someone a trustee of funds for a minor child, make sure that they are willing and able to handle the task, and will be able to for the duration of the trust – if a trust for a child might last 20+ years, do not name someone who is already in their 70s as the trustee.

10. Not Giving Enough Away Sooner or to Charity

Gifts of things or experiences to your loved ones (to support their education, or travel for instance) while you are alive often have a much bigger impact on the recipients than lump sums of cash when you pass away (See Mark's blog post on Family Vacations. Meaningful gifts to mark milestones like graduation often get remembered much longer than cash inheritances. See Mark's blog post on Family Vacations for how meaningful and fulfilling a family vacation can be.

Even modest gifts to charity can have a big impact on the intended charity. Gifts to charity teach your values to your family. Also, a gift to a charity can create a legacy that is shared among your survivors giving them a common bond and remembrance of you that the same amount of cash, divided among them as inheritance, can never have. Lastly, there are tax benefits for gifts to charity.

Estate law is complex because life is complex. There are often many options, and choosing the options that are best for you and your family depends on your unique circumstances. We strongly recommend that you get advice from an expert in the field who can help you weigh the options, choose a desired outcome, and get there efficiently.

Neil Milton is an experienced estates lawyer who advises estate trustees (executors) and beneficiaries on all aspects of probate, guardianship, and estate administration, and helps resolve estate-related disputes. Miltons Estates Law has offices serves clients across Ontario from offices in Ottawa and Toronto, and provides a wealth of free information and eBooks on its website www.ontario-probate.ca. Feel free to contact Neil directly at nmilton@miltonsip.com or 1.866-297-1179 ext 224

Please note that this post is based on Ontario law. If you live outside of Ontario, it is strongly recommended that you consult with an estates lawyer licensed to practice in your province.

The above blog post is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice regarding any specific legal issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

How my Dying Dog Impacted my Power of Attorney for Personal Care

Recently, I took my own advice and updated my will and power of attorney (“POA”) for both financial and personal care. The process was fairly painless and for those of you that procrastinate, as Nike says “Just do it”.

During this process, my wife and I discovered that we have a philosophical difference in respect to taking heroic measures if our health were to decline. I want no heroic measures and she does.

Reggie & Whitney Pic by Trudy Rudolph

As we were updating our POA for personal care, by unfortunate co-incidence, our dog Reggie (a schnauzer we got as a puppy), was having a terrible string of bad luck health-wise. Not to equate a dog with a human (although many people like their dogs more than humans) but Reggie’s experience became a reference point for our decisions on heroic measures.

Last year, Reggie who was then nine years old and in great health, started wondering off on our walks. For our other dog Whitney, who has a mind of her own, this would not be unusual; but for Reggie, this was strange, as he was a very obedient dog. We also noticed that he seemed to be having trouble finding his food dish. Long story short, he was found to have suffered from SARDS (“Sudden acquired retinal degeneration syndrome) and in a matter of a couple of days he had gone blind.

Over the next year, Reggie adapted to his blindness and did very well. This past December, we took Reggie to the Veterinarian (“Vet”) for a check-up and were told he needed some dental work. Following the dental work in late December, Reggie seemed unusually sluggish and was acting a bit strange. The Vet ran some tests and did an x-ray. The x-ray discovered a tumour in his lungs which he figured was lung cancer, but further tests were required to be conclusive.

During the Christmas holiday break, our family was trying to figure out our next steps when Reggie suddenly lost the use of his hind legs (probably due to the tumour pressing on his spine), which for a dog is a disaster; as they cannot go to the bathroom own their own. Our family was devastated and could not believe how unlucky one dog could be.

At this point, it became clear Reggie’s quality of life had declined drastically; however, his mind was still very sharp as far as dogs go. We were faced with the gut-wrenching decision as to what was better for Reggie, while also considering our challenges as dog owners. The decision as owners is conflicting. On one hand you want to keep your dog alive because he is your loyal companion, but on the other hand, he was beginning to become a challenge for our family; because he was not able to stand and more importantly, could not urinate fully and independently which we were told can be life threatening to a dog and result in excruciating pain when the urine is not expelled.

Reggie’s health issues became a proxy for my wife and me and our POA for personal care, which were still in progress. I told her if I was Reggie and had all these issues, do not take any heroic measures (i.e.: No chemotherapy or any measure that would prolong my life). She told me, if she was Reggie, she wanted me to do whatever I could to keep her alive assuming she still had all her mental faculties and could move her upper body and arms.

As the person who does not want any heroic measures, I felt we should consider putting Reggie to sleep before he suffered further. But, I was not going to make that decision alone. My son had read about how a doggie wheelchair could assist a dog who has no use of his hind legs. He immediately went to a hardware store and came back with various tubes and wheels and started building Reggie a wheelchair.

We tried it for a couple days and Reggie would not move once harnessed in. We all helped and came up with a couple tweaks to his design and we soon had a Jerry-rigged wheelchair that worked. Reggie with the help of my daughter, who is studying occupational therapy accepted the wheelchair and even wheeled his way to his water bowl for a drink on one occasion.

However, the reality was Reggie still had to be carried everywhere and could not go to the bathroom on his own and at times was shaking (which we were told is often indicative of a dog in pain – dogs supposedly often suppress their pain to not upset their owners).

After much deliberation as a family, we eventually made the decision to put Reggie to sleep.

I have only scratched the surface on the issue of heroic measures in this post, as this saga was more about Reggie. This is an extremely complicated discussion and you should obtain legal advice. I would suggest as a start you read this excellent article by Mark 
Handelman
 of Whaley 
Estate 
Litigation, on the issues of heroic measures and end
 of 
life
 decisions. While the article discusses the duty lawyers owe their clients in respect of end of life decisions, it raises all the issues you would need to consider. And those issues are beyond complex. For example, Mark notes that some procedures may be considered heroic when they are first introduced, but maybe common place years later (such as open heart surgery). Note: each province may have differing legislation.

This blog post had a dual intention. It was an ode to Reggie, but it was also meant to alert you to the importance of having a current set of POA’s and how much thought you need to put into your decision regarding heroic measures.

Disclaimer: I am not a lawyer and I have provided no legal advice. I have just made you aware that you should have a POA for personal care. Seek legal advice before executing a POA for personal care.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Just Do It – Write Your Financial Story! What the Heck are You Waiting For?

I am back from my summer blogging sabbatical and I am cranky. Not because I worked on my golf game and it is only marginally better. Nope, I am cranky because you, my readers, are listening to my suggestions but you’re not following up on them.

So what am I ranting about? Let me tell you. I have written a number of times about ensuring you update or prepare a will, ensuring you have powers of attorney ("POA") for both your financial affairs and health, and have also posted a couple detailed blogs on stress testing your finances should you die suddenly.

I have been pleased that many readers, friends, and acquaintances have told me that these posts have been very helpful. I have been delighted when they inform me they intend to take action in getting their financial house in order, to ensure their spouse/partner can carry on somewhat seamlessly should they pass away.

The problem is when I see them and ask if they have followed through; the answers I get are either: (a) I have started or (b) it is on my list of things to do.

Even financial experts like Ellen Roseman procrastinate. As Ellen wrote in this article, it was her 2013 New Year’s resolution to put her financial house in order. However, six months later Ellen wrote she had made little progress in “writing her financial story”. When I saw Ellen several months later at the Canadian Bloggers Conference, she informed me she still had not completed her New Year’s resolution. I have not spoken to Ellen lately, so she may have completed her task, but it is more fun to use a financial expert as Exhibit A :).

Ellen is not alone. A friend of a friend who is a very sophisticated financial person has told me on three different occasions how useful my blogs on this topic were, but yet, each time I ask him about his progress, I get silence.

So how do we break this log jam? If you are the financially savvy spouse/partner (in most marriages/relationships, one spouse/partner tends to handle the finances and the other spouse/partner often pays little or no attention to the finances) how about asking your spouse/partner tonight at dinner if you were to die suddenly, would he/she know where your will is, what assets you have, where to find the insurance, any of the passwords to your financial accounts, etc.? I would suspect the answer is no (after they blame you for ruining their dinner). Now sit back and think for a minute… not only will your family be in mourning (unless they are hoverers), but consider the financial and emotional stress you will be putting your spouse/partner under as they attempt to untangle your financial web.

Getting Your Financial House in Order

There a four key components to getting your house in order.

1. Discuss – Sit down with your spouse/partner and discuss whether your will(s) reflect your current financial situation and life realities. Determine what awareness they have of your financial situation and how easily they/you could carry on if you/they passed away.

2. Dig – Go through all your financial documents and pull together information in respect of your bank accounts, insurance policies, investment accounts, assets, passwords, loans and LOCs etc.

3. Document – Document the above in one location, be it your safety deposit box, a safe or via one of the Internet vaults.

4. Update – Some of you may be sitting back smugly saying “I have done this already Mark”. However, this is an ongoing process. You need to update your financial story annually. I know this because I updated my list six months ago and recently noticed that five passwords had to be changed because sites were compromised, or I was required to change passwords. I also moved some assets around to new locations.

If I have not guilted you into action, I am not sure what else I can do. All other alternatives I can offer you allow you to procrastinate, so I am not sure they will help. Writing your financial story, as penned by Ellen, is vital. I truly urge you at minimum to update your will(s), ensure you have POAs and create a list of your financial assets, life insurance, passwords, etc. If you do not do this, your family may not only face a devastating loss if you were to pass away, but a financial nightmare.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. 

Plutus Award Nomination

I want to thank everyone who nominated me for a Plutus Award in the category of “Best Tax Blog”. This is the third year in a row I have been nominated as a finalist in this category and it’s about time a Canadian Tax Blog took the coveted Plutus Award away from my American counterparts. It would just continue the Tim Horton's/Burger King trend of Canadian tax being King:)

The other nominees are:

Tax Girl - Written by Kelly Phillips Erb of Forbes Magazine.
Joe Taxpayer - Written by an everyday Joe, who likes numbers.
TaxProfBlog - Edited/written by Paul L. Caron of Pepperdine University School of Law.
The Wandering Tax Pro -Written by 40 year tax preparer Robert Flack. Got to love this guy. On his site it says " Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time". Now this guy should be called The Blunt Bean Counter!