We understand that estate planning can be stressful. You want your assets to be smoothly passed on to your family in the most tax-efficient way. Below we will cover seven of the most common mistakes we’ve seen over the past 30+ years, so you can avoid them.
Mistake #1 – No Estate Plan or an Outdated Plan
The most common mistake made is not having any plan, to begin with. A survey conducted in 2020 by LAWPRO determined that 56% of Canadians don’t have a will. If you die without a will, the government will handle your estate on your family’s behalf through Ontario’s Succession Law Reform Act. Family members would then need to apply to the court asking for authority over your estate. If you have a will, make sure that it’s updated. Your will should reflect the current state of the family and updated Canadian estate laws.
Mistake #2 – Incorrectly Named Beneficiaries In Your Will
This is a common cause of legal and relationship problems for families. Instead of using general terms, it’s best to specifically name people you’d like to include in your will. Otherwise, you risk your will being wrongly interpreted. For example, the legal definition of “child” and “children” in Estate Planning is strictly biological, which can exclude stepchildren. The same applies to naming charities for gifts in your will. If a charity is incorrectly named in your will the gift you’ve left behind is void.
Mistake #3 – Inappropriate Choice of Executor
Your chosen executor will need to wind up all your existing affairs and distribute your assets under your will. That is a lot of responsibility! Your executor should wear 4 hats:
- An accountant’s hat for keeping records, providing tax returns, and dealing with the CRA
- A lawyer’s hat for making decisions that can have personal legal ramifications
- A general contractor’s hat for clearing out your personal belongings
- A psychologist’s hat for leading the family during a time of grieving
Typical mistakes with choosing an appropriate executor are:
- Failure to ensure they’re capable and have enough time
- Failure to consider the impact it has on family relations
- Appointing too many people to act on different parts of your estate plan
Mistake #4 – Ignoring Assets of Sentimental Value
Sometimes the most important assets for a family are based on emotion. For example, your grandfather’s old watch or your mother’s fine china. Unfortunately, these things are often forgotten in the average person’s will. Sentimental assets can also be digital, like your Facebook or Instagram account. Make sure you include these in your estate plan because they have priceless memories in the form of photos, videos, and old conversations.
Mistake #5 – Lack of Care with Registered Investment Products
When a will is being validated by the Canadian government, it can’t be accessed by your family. This legal process is called probate and it is common among estates. Sometimes probate takes several months, which can be a great inconvenience depending on what assets are tied up in your estate. You should know that registered investment products, like an RRSP or TFSA, can avoid probate by having beneficiaries named outside of your will. Doing this will get money into your family’s hands much faster and reduce the probate fee.
Mistake #6 – Inappropriate Use of Probate Minimization Tools
Probate includes a government fee that is charged based on the final dollar value of your estate. This can be costly, so tools are sometimes used to minimize an estate’s value going through probate. Some of these include:
- Naming beneficiaries on registered investment accounts
- Naming beneficiaries on insurance contracts
- Jointly owned assets
- Gifting before death
- Having multiple wills
Mistake #7 – Failure to Consider the Words and Powers Set Out in Your Will
Every word in your will matters for what happens with your estate, so consider them carefully. Your executor only has the power provided in your will, so try to be 100% clear with your intentions.
In summary, here are some steps you can take to avoid these seven mistakes:
- Review your estate planning documents carefully
- Review your estate plan periodically to make sure it’s still accurate
- Reconsider your family’s sentimental assets to include in your will
- Make sure your will meets your family’s needs
For more details and real-life examples of these Estate Planning mistakes, watch our webinar’s recording here.
If you have specific questions about estate planning, you can contact us here.