The best way to learn is through mistakes. So here are three common estate planning offences.
Failing to prepare a will
What happens if you die without having a valid will in place? Your assets are distributable according to the arbitrary formula set out in the applicable provincial legislation.
- The Ontario Succession Law Reform Act (SDA), for example, sets out the following schemes of distribution. If the client has…Spouse only: Entire estate goes to the spouse.Spouse + one child: First $200,000 goes to spouse. Remainder is split equally between spouse and child.
Spouse + children: First $200,000 goes to spouse. Remainder is split: one-third to spouse; two-thirds to children equally.
Children, but no spouse: Children share equally.
No spouse or children: Entire estate goes to the deceased’s parents or surviving parent. If parents have predeceased, siblings share equally. Children of a deceased sibling share their parents’ share. If only nieces and nephews survive, they share equally.
Failing to keep your will up to date
An update is warranted under the following circumstances:
Marital status changes: In Ontario, marriage revokes a will. In the case of divorce, the will is read as if the former spouse predeceased the testator, whereas separation has no effect on the will.
- Nature or quantum of assets change
- Residence change
- Loss or addition of beneficiaries
- A change in health
Creating a DIY will
In Canada, there are three basic types of wills: formal (typed document, signed by the testator in the presence of at least two witnesses), notarial (only used in Quebec) and holographic (in the testator’s own handwriting and signed by them, no witnesses required).
Estate experts will always recommend a formal (or notarial) will prepared by an experienced lawyer (or notary). The typical problems associated with DIY wills include:
- Failure to name an executor or alternate executor
- Failure to dispose of all assets, thereby creating a partial intestacy
- Gifting more than you have
- Failure to appreciate the rights of spouses and dependants
- Improper wording
- Invalid provisions
- Read more: What not to do in estate planning