Estate planning is the preparation that ensures assets are suitably managed or properly distributed if an individual dies or becomes incapacitated. Estate planning can involve writing a will, setting up trusts, arranging charitable donations, or efforts to reduce tax implications.
Needless to say, proper estate planning is vitally important to ensure that an individual’s wishes are respected, and that family and friends are appropriately cared for. It’s common for people to enlist the help of a lawyer or notary who specializes in estate law to assist with estate planning.
Without professional help, it’s easy to make mistakes when estate planning. Further, many people never realize the implications of these errors, and unwittingly leave a mess for their family and friends to sort out.
One way to make sure you don’t create headaches for those you leave behind is by becoming aware of common estate planning mistakes and working to avoid them. Here’s a closer look at a few common mistakes, and why they are important.
Mistake 1 – Not having a will
Perhaps the most common and most easily avoidable mistake is not having a will. When someone dies without having made a will, they are said to be intestate. This can have significant consequences for your family, especially if you are not formally married, or have heirs in other provinces or countries.
If someone in Ontario dies without having made a will, the province’s Succession Law Reform Act determines who receives their assets, even if it’s not what the individual had informally requested. Spouses and children are first in line, even if you are separated but not divorced. Generally, only blood relatives, including children born outside of marriage or legally adopted children, are eligible to receive an inheritance.
No matter how old you may be, it’s always wise to have a will that clearly indicates your desires about how your estate will be divided. The need increases if you get married and/or have children. Wills aren’t set in stone once written: they can be updated to reflect any changes in status.
Mistake 2 – Not going beyond the will
While a will is important, it doesn’t take care of everything. If you are a co-owner of a business, or hold joint bank accounts with someone, you’ll need to designate a beneficiary for these things. In some situations, the same may be true with assets within a Registered Retirement Savings Plan, or pension benefits. Consult with a trusted professional to find out what’s best.
In addition, you’ll also want to determine who will make decisions for you if you become incapacitated (power of attorney), and choose someone to handle things once you die (executor). If your relationship with these people changes over time, or if one of them dies, make sure to steer clear of potential trouble by naming a suitable replacement.
Mistake 3 – Not keeping organized records in a safe place
It’s essential to keep up-to-date, accurate records of things such as investments, bank accounts, loans, and insurance policies. It’s also helpful to leave contact information for accountants, investment advisors, or legal advisors.
An organized system of files and records will make it easier for someone else to access the information they need once you’re no longer able to provide it. For added protection, consider keeping important files in a fire-proof box or, better yet, storing such information in a safety deposit box at your financial institution for added security and peace of mind.
Mistake 4 – Not considering tax implications
There’s no avoiding taxes, even in death. However, it is possible to limit the tax exposure to your estate and to your beneficiaries. Make sure your executor files a final income tax return on your behalf after you’re gone. It’s also wise to work with a trusted professional who can advise you on the tax implications of certain decisions, such as leaving property to a child instead of a spouse. By seeking professional help and planning ahead, you can minimize the impact of taxes and make sure your beneficiaries get more.
Interested in learning more? Watch episode two of the Moya Financial Matters Webinar Series, where we help you get started on thinking about strategies to protect your wealth and take care of loved ones.