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.

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.

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.

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.

A little preparation goes a long way

If you ask most people, they would prefer that none of their hard-earned assets end up wasted on taxes or professional fees, or simply squandered, when they are passing them on to the next generation. Unfortunately, however, these things often happen, especially as estates get bigger – and we’re often worth more dead than alive, so estates are always getting bigger. Here are some ways to help prepare your heirs to inherit:

  1. Share assets during your lifetime. Gifting money to your children now allows you to see it enjoyed. It also allows you to see whether they will spend it wisely.
  2. Set up a trust. While there can be some tax consequences to trusts, they can also have a lot of benefits if set up for the right reason and in the right way. Always speak to your accountant, financial planner and lawyer before making the final decision, but where they make sense, they can allow you to save significant time and money transferring assets on your death, and can protect those assets from your heirs’ ex-spouses and creditors.
  3. Teach them about money. It’s never too late – or too early – to start learning. My two-year-old plays with his cash register and is learning about how many “coins” it takes to buy “milk” but we will be teaching him with real money before too long. Even if your children are adults, if you’re concerned about their ability to handle money, you can always still teach them. This also applies to grandchildren.

Estate planning is not a set-it-and-forget-it situation. Ensuring your assets don’t disappear the moment you die can require a bit of work, but it’s worth it.

 

 

 

 

DIY

I’ve talked about doing your will yourself many times before, and I always start by saying I’m biased in this regard, because I am. I draft wills for a living, so I obviously am going to recommend getting a lawyer to draft your will instead of doing it yourself.

But don’t take my word for it. Check out this article  from The New York Times. Will preparation programs seem like the best new thing, but as the author notes, you don’t know what you don’t know, and the kits are quite simply not good enough.

It’s important to have a will. It’s equally important to have a good one.

Don’t set it and forget it

I have had multiple clients come to see me over the past several months because they need to update their wills. The wills were all at least 20 years old; they named family members as executors who had long since died or become incapacitated, they had complex trusts for children who were well into adulthood, or they named beneficiaries who were no longer in their lives.

It is so important to review your estate planning documents on a regular basis. I tell my clients to pull them out every two or three years; if it still fits your life, then put it away again, but if it doesn’t, you want to update it sooner rather than later.

An estate plan is a living thing. Having a will and powers of attorney is incredibly important; having them up-to-date is just as important.

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How (not) to sign a will

One of the easiest things to do wrong on a homemade will (one done through a kit) is in the signing. Signing your own name at the bottom is not the problem; getting witnesses is.

I was recently asked if a will was valid based on the fact that one of the beneficiaries had witnessed it. That situation is one of the most distressing for a beneficiary, because yes, the will is valid, but the gift completely fails. If you witness a will that you’re named in, you are going to get nothing. It’s a failsafe to ensure that you aren’t forcing someone to sign a will naming you as the beneficiary when there has to at least be someone else there to witness. It’s also a reason why having a lawyer help with your will makes your will that much better.

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Keeping up to date

calendar-1I generally recommend that my clients look at their estate planning documents every few years to make sure they are still appropriate, and update about every 10 as the law will change. What is also important is to keep in mind that there are other documents that need changing too.

If you divorce, your will, from that point forward, will be treated as if your ex died before you. This is not the same for beneficiary designations. It would be a shock to your children if they found out that your life insurance, or work pension, was left to your ex-spouse, simply because you forgot to update the beneficiary designation. Similarly, your spouse would be upset if it was left to your parents because you didn’t update it after you got married.

When life changes, change your documents.

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