Passing on your RESP

I have two young children, and my husband and I started a family RESP when our first child was only a few months old. Education is much more expensive these days than when we went to university, and will likely be even more so by the time my kids go, so saving and taking advantage of government grants is very important.

RESPs are a different kind of vehicle from a registered investment like a TFSA or RSP. While those can have beneficiaries, the RESP cannot. What you need to do is have a specific clause in your will that states that the RESP is to pass to the child’s guardian, provided they set up a new RESP for the child’s benefit. If you do not have this, the RESP is collapsed and all of the grants are returned to the government.

If you have been saving in an RESP, you should make sure you have a will set up. You’ve worked hard to get those grants; don’t lose them.

Silence is not golden

If you have a power of attorney for personal care, you have the option of listing specific instructions in it. These can be things like whether to donate your organs, your preference for care in a facility vs. in your home, or even end of life care. The general rule that your attorney has to follow is first to look at any written instructions, then to follow your known wishes, and last to do what they think you would want done.

You don’t have to write everything down, but you should at least be discussing your wishes with the people you have named. If they don’t know, they can’t do what you would have wanted.

Don’t want your estate to be sued? It helps to use a lawyer

Over the coming years, there is going to be a massive transfer in wealth between generations. While the majority of people don’t have wills and their estates will therefore be transferred in accordance with the default rules, a large minority do have wills and expect those wills to be honoured. The problem? DIY wills are vastly more likely to lead to will challenges.

If there is anything unusual about your will, you run the risk of having someone sue over it. Left an unequal amount to each child? Left out a spouse? Left nothing to your kids in favour of your new partner? Are there concerns about your capacity? Did you change your will to cut out someone who was in it before in favour of someone else? Anything the slightest bit out of the ordinary leaves wiggle room for someone who would be interested in challenging the will; having done a DIY will (a kit, or an online preparation service, or even a handwritten will) makes it far easier. A lawyer who does wills on a regular basis will have taken careful notes about your reasons, and if someone sues, this can help defend against them. Even if no one sues, losing out on valuable advice can cost your estate far more than you would have saved by not going to a lawyer.

I’ve said it before, and I’ll keep saying it: Get a will, and get it from a professional.

Anthony Bourdain: No reservations, and no updated planning

Anthony Bourdain tragically died by suicide recently. Also tragic: he did not update his estate plan after his separation, which means that his estranged wife will be managing his estate. Perhaps this is what he wanted, trusting that she would manage things appropriately; more likely, he got busy and forgot, or didn’t realize that he had left her in charge.

In Ontario, as in many places, neither divorce nor separation revokes a will. Unless you make an effort to do a new will, for the most part, everything will stay the same.

If you are going through a change in relationship – entering or exiting – you need to change your will, too.

As far as your estate goes, stepchildren are not, legally speaking, children

I have had many clients over the years who have spoken about their children, and only after digging down do I discover that they are the client’s stepchildren, never formally adopted though often raised by the stepparent from a young age. The problem? Legally speaking, without a will, stepchildren cannot inherit from their stepparent.

Ontario has very strict rules about who can inherit if you don’t have a will. Children count, whether born in or outside marriage or legally adopted. Stepchildren do not. Further, if you simply say in your will “my children” without naming them, the presumption is that you only mean your legal or biological children.

If you’re raising children you aren’t legally related to, and you want them to inherit, you NEED a will, and it needs to be done properly.

Avoiding an estate planning disaster

Here are some tips to minimize the pain to your finances and your loved ones if something happens to you:

  1. Have powers of attorney. Do you know what would happen if you were seriously injured in a car accident, had a stroke, or had to suddenly leave the country in an emergency? Without a valid power of attorney for both health care and finances, it becomes very difficult for anyone to act on your behalf. Getting appointed as a guardian through the courts is expensive and time-consuming, and is also permanent. Powers of attorney let someone make decisions on your behalf, and then can take that right away when you get better. They are incredibly important.
  2. Have a will. It bears repeating: what you don’t know can, in fact, hurt you. The law is very particular to where you live. Don’t assume you know what will happen to your estate, because if you’re wrong, someone else will suffer.
  3. Don’t DIY. I’ve said it many times before. Homemade wills are frequently done wrong. You’ll save a few dollars, and cost your family thousands. It’s not worth it.
  4. Keep beneficiary designations up-to-date. If you marry, separate, have children, or lose a spouse, it is critical to update your life insurance, RSP, TFSA and RIF designations to send that money straight to the beneficiary.
  5. Keep it updated. Life changes. So does the law. A will, powers of attorney and beneficiary designations all need to be updated on a regular basis to ensure that you are properly protected.

If you change your mind, be sure to change your will too

I see it all too often – a beneficiary confirms that the deceased had changed their mind about leaving money to a particular charity, or even a person, and wants to know if anything can be done after the fact. The short answer is, emphatically, no. Once you die, your will is set in stone, barring a court order – which is not easy to obtain, and having forgotten to update your will is never a valid reason.

If you change your mind, you absolutely must write it down, Don’t make changes on a copy of your will; don’t make unwitnessed changes on a typed will. See your lawyer, do it right, and then you won’t need to worry about what will happen later.

Choose

Choosing who will administer your estate is among the more difficult decisions you will make when drafting your will. However, it is also one of the most important, because it will determine how quickly your estate is distributed, as well as how well everyone gets along during the process.

You will want to choose someone who is, foremost, honest, who will follow your wishes. You will also want someone who will not deliberately antagonize the beneficiaries. Picking one child who doesn’t get along at all with the others will not help anything; nor will picking all of your children to work together, if they don’t get along. You will also, ideally, want someone who lives in your jurisdiction; many places restrict an executor’s ability to act if they are not local. In Ontario, for example, if the executor lives outside of the province, a judge can order the executor to maintain a bond, which can be prohibitively expensive.

Remember that being an executor is a hard job; it is not an honour, and you do not have to pick someone to avoid hurt feelings. Who you pick can seriously affect what you end up leaving to your loved ones. Choose wisely.

The pooled trust: an equitable solution, rather than an equal one

I have a lot of clients who have young children, and often, they are spaced a few years apart. When this is the case, a great solution might be a pooled trust.

A pooled trust keeps everything in your estate in one big trust, with money available for all of your children from the common pot. It’s held that way until the youngest child reaches a certain age, usually around 22 to allow them to finish a college or university degree. The advantage is that the younger children are not penalized for having greater costs to be paid out of trust – often, you would have been helping your children with tuition costs, etc., so older ones may have had that benefit before your death while younger children have to pay for education expenses out of their own trusts before having money for other purposes. Pooling a trust means that younger children get that same advantage; the trust is then split apart when the youngest child reaches a specified age, and each child has their own trust for their own expenses from that point.

If you have more than two children, or your children have a larger gap between them, a pooled trust might be the right solution for you.

Estate planning is for everyone

Many people feel that estate planning is only for the very rich, or those with highly complex family situations. This is simply not the case. Most of us, if we knew what will happen without a will, would go running to the nearest lawyer to have a proper will drawn up.

Are you in a common law relationship? Are you in a second marriage? Are you in a relationship with someone who is not the other parent to your children? Are you separated? Are you divorced? Do you have life insurance? Do you have young children?

These are just a few of the common situations that would be made very difficult if you die without a will. Do yourself – and your loved ones – a favour, and get one done.