Wills and estate planing are two of the most commonly neglected and misunderstood elements of financial planning. As such, I thought it would be quite fitting to touch upon both issues in this month’s column.
Most people work hard their whole lives with the intention of providing for themselves and their loved ones. As a continuation of this objective, if one were to suffer an untimely demise; the objective is usually to provide as much as possible for those left behind.
Estate planning is the process of ensuring that assets are shared according to one’s wishes for the maximum benefit of their heirs. On the surface this may seem like a simple enough task to accomplish; however, this is an area that is laden with numerous pitfalls.
One key estate planning tool is a will. A will is a formal legal document that details the process for distributing one’s assets (the estate) in a timely, orderly and tax efficient way. Since the original author of the will (the testator) can not be asked for any clarification, it’s imperative that one’s wishes are stated very clearly. Even if this objective has been accomplished, it does not guarantee that one’s wishes will be executed as there are several grounds for rendering a will invalid. In fact, there are many lawyers that have made quite lucrative careers out of just challenging wills (especially in BC where the laws are quite amenable to this).
The best way to portray the utility of wills is to illustrate what would happen if a person died without possessing one (intestate). If an individual dies intestate; then rather than have any input as to how their estate is distributed, their estate distribution will be determined by the provincial government. Without a will this process usually takes longer because an executor must be assigned by the courts to account for and disperse the assets after the creditors of the deceased have been paid.
The standard distribution in BC is for one’s spouse to get the first $65,000 of estate value and then to have the remainder divided equally between the spouse and remaining children. If there isn’t a spouse or children then there is a formula that determines how everything gets distributed amongst other family members.
On the surface this may seem like a fair distribution; however, most people’s estates do not exclusively consist of cash. As a result, much conflict can arise from disputes about who gets which items or if these items should be sold for cash. These and other conflicts are often further compounded if an individual has been married more than once or if they have children from more than one relationship. The end result is often having significant portions of the estate value exhausted in legal fees from feuding family members.
Another perhaps more disturbing event which happens as a result of a person dying intestate results from the fact that all minor children will be placed under the care of a guardian appointed by the courts. To compound things further, if some family members have special needs, they may not receive the same priority by the courts as the testator may have wished.
In summary, anyone who has a spouse or children, or is simply concerned with how their property is distributed after their death should make a will. There are “do-it-yourself” kits and software packages that are widely available; however, it is highly recommended that you utilize the help of a legal advisor if your estate is anything but simple. Bear in mind that what one may assume is a simple estate may have legal complexities that can not be properly addressed without legal advice. Utilizing the help of a qualified financial advisor in this process can further magnify the benefits of a will, as there are a number of tax and estate planning strategies that can be used in conjunction with a will.