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After the chaos and indulgence of the holiday season, the dawn of a new year is a popular time for many to adopt a healthier lifestyle or get their financial consumption under control. But no resolution will have a more lasting impact than the commitment to get an estate plan in place.
If it all seems a bit daunting, it doesn’t have to be — especially with the right guidance from an experienced estate lawyer. To get started, here are some of the key steps towards crafting a comprehensive estate plan.
The cost of dying without a will is something most people underestimate. With advice from a lawyer — and an accountant if necessary — you can ensure your assets are structured in a way that maximizes the tax efficiency of their transfer to your chosen beneficiaries.
A properly drafted will also spares your loved ones the emotional toll of an intestacy, allowing them to focus on their grief rather than deal with an unnecessarily time-consuming and costly probate process.
By getting a will in place, you take control of your own legacy, deciding yourself who should benefit from your estate. Otherwise, in Ontario, it’s the Succession Law Reform Act that determines how assets are distributed in an intestacy.
Selecting the executor of your will, also known as the estate trustee, can be a bit of a balancing act. The job is a heavy responsibility, so your choice should not only be someone who you trust implicitly, but who is also willing to take on the associated duties.
Preferably, the person you name as your executor will be organized, understand your family situation, live relatively locally and be able to handle money – factors that may significantly shrink your pool of potential candidates.
Try not to make your choice out of obligation. One of the biggest mistakes I see on this front is a testator who chooses a particular family member as executor because they worry that the person will be upset if they are overlooked in favour of someone else.
Some people like to solve this problem by appointing more than one executor to administer the estate as a team, but multiple trustees are often a recipe for disaster, especially if they have a history of disagreements. If you are determined to appoint more than one trustee, try to find a third person who can break the deadlock in the event of any arguments.
Testators with minor children need to think about a suitable guardian for their children in the event that both parents die while the children are still young.
Factors such as the potential guardian’s health, age and existing relationship with the children will help determine the final choice, with many opting for a grandparent, sibling or close friend who is willing to take on the responsibility.
Some parents may be tempted to name joint guardians for their children to avoid offending either side of their family, but, as with joint executors, appointing joint guardians can lead to huge headaches. The joint guardians must agree on all significant decisions for the children, including where they will live. Typically, therefore, one person is chosen as the children’s guardian. This person should be someone you trust to care for the children until they are adults.
You will also want to consider how old you would like your children, or other minor beneficiaries to be before they receive their inheritance. If there is no will, estate funds are held until the minor beneficiary turns 18 and then they receive their entire inheritance at that time. Most people agree that 18 is too young to manage large sums of money responsibly. Wills with minor beneficiaries are commonly drafted to include trusts to keep the children’s inheritance invested until they are able to manage their own funds, and the trusts will also typically be drafted to spread the distribution of funds over many years, rather than in a lump sum at age 18.
Think carefully before naming a minor child as the beneficiary of a pension, RRSP or life insurance policy, since the money will then be held until they reach 18, when it will be paid directly to the child. Depending on the age of the child, it may make more sense to set up a trust to receive the funds, so that the money can be invested or used for their benefit while they are young, before the eventual distribution of the remaining funds can be paid to them in instalments over a number of years, or in a lump sum once they have reached an age where they may be more able to manage their own finances.
There’s nothing like the death of a loved one to bring longstanding family divisions to the fore or send sibling rivalries into overdrive, particularly in blended family situations where the deceased has married for a second or third time.
While it is not always possible to avoid a dispute over an estate, one way to take the edge off is by giving your heirs an idea of what they can expect from your will ahead of time.
Remember that equal treatment is not always fair treatment: some children will have greater financial needs than others after the death of a parent, while siblings often receive uneven financial assistance during a parent’s lifetime because of their different stages of life. Some children may have taken on the lion’s share of family responsibility, while others may have had a falling out with their parents.
Just having the conversation may be enough to preserve relationships and head off any bad feelings among beneficiaries, but some families may benefit from some extra help from an intergenerational mediator, who can facilitate discussion among all parties to the dispute with a view to a settlement that everyone can live with. As an intergenerational mediator accredited by the Ontario Association of Family Mediation, I can help with this kind of family discussion.
Powers of Attorney (POA) for property and personal care are some of the most vital and overlooked estate planning documents.
Properly drafted, they allow a person’s closest family members to take control of their affairs in the smoothest way possible when they are no longer able to care for themselves. Timing is critical, since POAs can’t be enacted retrospectively. If someone is determined to be incapable of managing their own finances, they are likely no longer able to make a valid POA.
The sheer sensitivity of either role means that your attorneys for property and personal care should share many of the same qualities as your estate trustee: responsible, trustworthy and knowledgeable about your family situation.
Along with your executor, you should also take the opportunity to show your attorney for property where key documents are normally kept. Having performed both roles myself, I know from personal experience how stressful it can be to track down things like a will, house deeds, life insurance policy, car registration and other important documents after a person’s sudden death or incapacity.
If you have questions about estate planning and would like to explore your options, we would be happy to help you.