Refinancing is math

Pure and simple. How much will you save on interest, vs. how much will you pay in penalties? Reading the fine print before you sign your mortgage in the first place will help immensely, because then you will know what sort of penalty to expect. But the bottom line is that you should never assume what your penalty might be, because it’s almost always going to be a bit higher.

Separated or divorced? You NEED to update your will

We had another client recently who received a windfall; her former husband hadn’t updated his will, and they were separated without a separation agreement and not yet divorced, so she inherited everything on his sudden death.

I can just about guarantee you that that is not what he wanted.

In Ontario, divorce doesn’t revoke a will; it simply removes the divorced person from the will. So, if you left everything to your spouse, alternatively to your brother-in-law, he’s going to inherit even if your former spouse won’t. If you’re separated without a separation agreement, what’s in the will stands, and also, your spouse can inherit if you don’t have a will at all.

This is one of the situations where you absolutely must update your will. You can change it again after you have your separation agreement in place, if anything needs to be in there once the paperwork is all signed, but you must protect yourself now.

Common buyer mistakes

Here are some things that often cause trouble for buyers:

  1. Going shopping before meeting with a mortgage broker or agent. You want to know how much you actually have to spend, so that you don’t look at places outside your actual budget.
  2. Skipping the financing condition because you got prequalified. The prequalification is confirmation that you can pay the mortgage, but the bank still has to like the house. Even if you’re prequalified, you should always put in a condition on financing so that the bank has a chance to look at the house and be sure they want to lend money for you to buy it.
  3. Not paying attention to closing costs. There will be bills for property taxes, land transfer taxes, title insurance, and legal fees. Don’t assume what this will be; ask your real estate lawyer what they estimate so that you know what to expect.
  4. Forgetting about regular home maintenance costs. You’ll have your mortgage payment, but you’ll also have property taxes, insurance, utilities, and building maintenance. Don’t forget all of that when determining how much you can afford to buy.

Keep these in mind, and you will have a much smoother buying experience.

Becoming a first-timer again

For some things, you only get one chance: first time buyer credits for land transfer tax rebates or for income tax claims, for example. However, there is one area where you can have another chance, and that is the RRSP Home Buyer Plan. You can borrow from your RRSP to buy a home and, if you sell it or repay the loan and wait long enough, you can borrow money again. You should always call CRA or check with an accountant first to make sure you’re eligible, but if you have money in your RRSP, it’s worth looking into.

Don’t make these 5 estate planning mistakes

There are a lot of things that can go wrong in an estate plan, particularly if you try to DIY. Here are some of the big ones:

  1. Not planning for incapacity. All of us will die, so having a will is important. However, many of us will also become incapacitated at some point in our lives, whether temporarily or permanently. Powers of attorney are critical to have in place so that you can choose who will manage things for you in the event that you can’t take care of yourself.
  2. Not thinking about long-term care. Related to my first point, many of us will end up needing long-term care in the future. Sometimes, insurance is an option; if not, then you need to think about saving for it now so that you have choices when you’re older.
  3. Not updating your estate planning documents. Wills don’t need to be updated all of the time, but you certainly should be looking at it regularly. Life changes; don’t keep that will that names your former brother-in-law after your divorce, or that keeps your children’s shares in trust until their 40 when they’ve become responsible adults.
  4. Choosing the wrong executor or attorney. This is one of the biggest issues in estate administration: an executor who doesn’t know what they’re doing, or actively takes wrong action. Don’t pick someone out of guilt or a feeling of obligation. Pick someone who will do the right job.
  5. Not keeping records. If your executor doesn’t know about your secret bank account, eventually, that money will go to the government. At best, it will languish, not being given to anyone. Be sure to have a list of what you own so that whoever needs to administer your estate can do so.

There can be a lot of moving parts in an estate plan, but planning well now will make everything easier for your executor and beneficiaries down the road.

Buying a house involves more than a down payment

Here’s some great advice when you’re buying: have money set aside for more than just your down payment. You will have fees and adjustments to pay immediately on closing, and I can almost guarantee you will have something to pay within a few months of moving in. Even if it’s minor, having no money left over can only spell trouble, and you could need a new appliance or have to fix a major water leak. Having some money set aside for those emergencies right off the bat will save you significant stress down the road.

Getting married? Get a will.

Last week, I wrote about the dangers of being common law without a will. This week, it’s about being married – specifically, what to do once you’re getting married to prepare yourself financially. Here are some tips:

  1. Think seriously about getting a cohabitation agreement (prenup), especially if one of you is coming into the marriage with some assets.
  2. Update your estate plan. This includes getting wills and powers of attorney naming your new spouse (or not, as the case may me) so that what you want to actually happen, will. Keep in mind that getting married automatically revokes any will you had before – which is important if this is not your first marriage – but it does not revoke your powers of attorney.
  3. Update your beneficiary designations. If you biggest asset is your RRSP, and it still has your parents or siblings as beneficiaries, your new spouse will suffer financially. It’s an easy thing to update.

Getting engaged is an exciting event, but you need to take some steps to make sure that you and your soon-to-be spouse are protected financially.

From Heaven to Hell: vertical limits of property ownership

I love the podcast 99% Invisible, and I also subscribe to their newsletter. A while back, they did an article on how far up and down your property ownership goes. I can’t do better than them, so here is a link to the article on this fascinating topic.

Common law? Get a will!

Sometimes I feel like a broken record, but it bears repeating: common law couples in Ontario do not have any inheritance rights. If you do not have a will, you are not legally married, and any assets are only in one name, then you will inherit nothing from your spouse, no matter how long you have lived together.

This exact situation went through the Ontario courts last year. Mary MacDonald lived with James Pouliout for over 20 years. He had one son, Kyle, from whom he was estranged. Mary had gone through a bankruptcy not long before they bought a house, so only James went on title to the house, even though Mary put in a significant part of the down payment and had paid half the mortgage and other house expenses the entire time they lived together. James never made a will, and on his death, his estate fell automatically to his son.

Mary ended up getting part of the house, through a court order for what is called a construction trust based on the fact that she had paid so much toward the house over the years, but she should have gotten the entire house. If James had had a will, he could have left everything to her, and made her his executor. Instead, everything went to someone he probably wanted to get nothing.

We absorb so much about the law from media, whether that is television, movies, or social media posts from friends. The problem is that the law doesn’t care what TV show you saw where a common law spouse got everything; in Ontario, it simply won’t happen.

If you aren’t legally married, you need to get some advice, and you really need to get a will.

Don’t DIY

I hear all the time about people who want to save a bit of money on will preparation, so they do their will themselves, or get a kit, or do an online program. The problem is that, while they do save money on the drafting, they end up costing their estate far more in the end because of the almost inevitable difficulties with administration on their deaths.

Take, for example, Sandra Hatton. Ms. Hatton, a devout Christian in Australia, was dying of ovarian cancer. She wanted to save money on her will, so she used a kit, and then changed it through handwritten notes four times in the last weeks and days of her life. Her instructions were unclear, bequests were added and removed and added again, some beneficiaries didn’t exist, and overall, it was a mess. It’s estimated that her estate will waste upwards of $20,000.00 dealing with the confusion, so that she could save a few hundred.

Yes, having a lawyer draft a will is going to cost you more than doing it yourself. But ultimately, it will almost certainly save you – or your loved ones – money.

You can read all about Sandra Hatton here.