They’re called the “accumulation years,” the 20, 30 or 40 years we work and earn money. During this time we buy a home, own a small business, volunteer, donate to charities, dabble in stocks, buy life insurance. Whatever our assets and interests, we want them protected and passed down to good hands.
The solution is to create a will and keep it updated – not the most enjoyable of life’s tasks, but one of the most important. Yet more than half of us don’t have a will or a power of attorney document, according to a survey by the Angus Reid Institute.
A power of attorney authorizes someone to act on your behalf. There are two types. One addresses your property and the other addresses your personal care and health-related decisions in case you become mentally or physically incapacitated. A will, on the other hand, addresses your estate on your death. If you do not have a will, the law — not you or your family — decides who can apply to be the estate administrator and how your estate will be divided. This means the distribution of your estate may not be what you want. For example, in most instances, a preferential share goes to the spouse and then the balance is divided among the spouse and descendants. A clear outline of your wishes, set out in a will, can help avoid family disputes.
There are five important issues to carefully consider when writing your will:
1. Who will you ask to care for your “stuff” and for your children?
The executor is responsible for everything after your death, overseeing who gets what and making sure all your debts are paid. Most people appoint their spouse as executor and list a family member or close friend as a back-up. The will may state an amount to be paid to the executor as a fee, usually based on the size and complexity of the estate.
A will is meant to handle all aspects of your property. It’s also normal to appoint guardians for minor children and a trust for their support in your will. But, since children are not property, while what you state about them in your will is given significant weight by the courts, it isn’t binding.
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2. Are there specific circumstances that should be addressed?
Wills are as simple or as complex as your life. Business owners and people who own shares of private corporations require special treatment in a will. Complicated family issues such as distributing an estate when there is a second marriage also need careful consideration. Platten says one of the biggest mistakes people make is not telling their lawyers their entire family stories.
3. How are your assets held?
Believe it or not, says Karen Anne Platten, an Edmonton-based attorney who specializes in estate planning and administration, people don’t always own what they think they own. You may have sold a property or transferred a portion of your business years before and forgotten about it. “This is important,” she says, “because when you are giving assets away you have to make sure you actually own them." You can hold assets in a variety of ways, including jointly with right of survivorship, held as tenants-in-common where two people each have a half-interest or held with beneficiary designation.
4. How do you want your assets distributed?
Dealing with children or other dependants fairly does not always mean dealing with them equally. “I’m seeing less equal distribution these days,” says Platten. “One of my clients had three kids. The life insurance proceeds went to the two younger kids because the eldest had finished university and started working.”
Ken McNaughton, a financial advisor in Victoria, B.C. does not draft wills but advises his clients to divide their estates using percentages rather than fixed dollar amounts, because an estate’s value changes over the years. If you wish to leave an additional amount to someone privately, McNaughton and Platten suggest using an insurance company contract, either life insurance or an investment account, which can name a designated beneficiary. You can also use a life insurance policy to provide funds to cover capital gains and other taxes on your estate.
The death benefit paid under a life insurance contract and certain non-insurance plans does not form part of the estate, and will remain private when paid out to the named beneficiary. Note, however, that in some Canadian provinces, if you have not adequately provided your dependants, a court can order that all or part of the insurance money be paid to the estate or specific dependants.
5. When should you change your will?
It’s important to keep your will current. Any time there is a change in your life your will needs to change, too. Marriage, re-marriage, separation, divorce, birth or adoption, the death of a spouse or of an executor are all reasons to make changes to your will. The law may force your hand: In some provinces, getting married revokes (cancels) your current will – which means if you die before drawing up a new one, you will be treated as having none at all. Conversely, getting divorced doesn’t automatically revoke your will. Either way, see your lawyer to make sure your estate will go to the people you want it to go to.