Wills Are Fussy Things.
Posted on November 10, 2021
by Don Shaughnessy
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Wills come in may forms. From a simple one, “All to Wife.” to a complex one involving many kinds of valuable assets spread around many countries, with distributions to charities, trusts for grandchildren, and to children, some of whom may not be resident nearby.
You’d think a will would be easy enough to administer, but you’d be wrong.
Where do the fights begin
I have met just one person who thought if the children fought over the assets, it would be okay. Most parents will go far out of their way to prevent needless bickering and bad feelings. There are some easy things to avoid. Please do so.
- You should know what the duties of an estate trustee ( executor) are and think through the problems they will have. They will make the transition to your heirs flow. Remember you will not be there to provide guidance. Being an executor is much more difficult them people think. Assume nothing.
- Family executors are a problem. That sounds like a good idea, but it often is not. Be especially careful if you have just one of the children. It could work, but there are many cases where it did not. Two children might not work either because if they disagree, then what? Three is not much better. Just like three person committees, almost invariably two gang up on the other. Four tends to work but is cumbersome. It’s like the class project. Not everyone does their share of the work. For anything beyond simple assets and distributions you will usually be well served by a corporate executor.
- Don’t leave specific assets to people. It gets very messy if you don’t own them at the time you pass on. Of all estates litigated in the United States, about 40% are in court over this feature of your will.
- Not all assets must be probated. Probate is to assign the right to deal with assets to the estate trustees (executors.) If you have just one will, everything will be probated and that costs fees to the government and often to business valuators. Talk to your lawyer about how to organize multiple wills. Corporate assets and amounts due from the corporations plus many personal assets can be in one will and things that require probate, like real estate, bank deposits, stocks and bonds in another. Sometimes it is better to have a specific will for assets in another jurisdiction. Again, seek guidance.
- Learn how fungible works. Fungible means that one example of thing is identical to any other. $50,000 in the Royal Bank is indistinguishable for $50,000 at TD Canada Trust. Fungible assets are easily divided and distributed and some can be dealt with by beneficiary designation. That avoids some estate costs too.
- Know when fungible isn’t possible. When there are bitter fights, it is usually over something non-fungible that has emotional attachment for more than one of the heirs. Jewelry is common. Sometimes art or antiques. Collectibles too. Be smart. Sort it out when you are alive to do so, and if you don’t want to find the family’s wishes, you are probably doing it wrong. At least leave instructions to the executors how you want them to deal with it.
- Some collectibles are valuable and there can be tax consequences. Anything with a fair value at death greater than $1,000 can create income tax liabilities. It would be nice if you could establish how much each cost. Your executors will appreciate it.
- Digital assets have been a problem in the past. Who owns the pictures you stored on the internet? What about your iTunes library? Kindle books? Those sound trivial enough, but do you own any crypto currencies? Losing control of those for want of password or instructions where to find the wallet could be well beyond costly.
- Be careful with heirlooms and monuments. Monuments could be the family business, the family farm, the cottage, or ski chalet. Most of the time there are particular people who want these and just as often there are some of the heirs who don’t. These assets are not often fungible and they are not often liquid. Take some pains to sort it out beforehand and be sure the executors know your thinking.
- Never forget the liabilities that come up on death. Taxes on capital gains can be quite large. Taxes on deferred income plans like pensions and RRSPs approach 50%. You may have contractual liabilities like bank loans. Don’t forget the ones that are contingent, like borrowings for tax shelters, or guarantees for business loans. Know where the executors will get the money to pay the liabilities, any specific bequests, and amounts to equalize shares.
- Understand how Family Law will affect the heirs. It is not difficult to have assets left to a child kept apart from assets to be divided in a separation or divorce. Discuss it with your lawyer.
- If you have disabled heirs understand how the rules work. There are meaningful advantages to working through this with someone who knows what they are doing.
- For any complex estate and some simpler ones too, do a proforma probate. Have your accountant or someone with an awareness of the rules and tax possibilities pretend you’re gone and take your net worth statement, your instructions, and work through the will. The only restriction is they cannot ask you any questions. You would be surprised how often serious mistakes show up. I know of one case where a person’s will inadvertently left $12,000,000 of stock in his business to both his business partner instead of his wife. Could have been a problem. In another case, a person with a large estate wanted to leave it his community. Huge tax liability avoided by putting up a foundation to receive the assets. You never know if you have enough money to meet the obligations of the estate until you work it through.
- Communicate. Be sure the heirs have reasonable expectations. Settle possible disputes beforehand or give the executors the benefit of your judgement. Sometimes sell everything leaves all the heirs equally upset which is better than fighting with each other. Just like they tell you in communication courses, “The worst communication is no communication.”
Have a valid will. If not the government implicitly creates one for you. You won’t like it.
A perfunctory can create as many problem as it solves. Do not take the process for granted.
Don’t assume you can change your will later. You may “lack capacity.” Treat every will you do as your last. Someday one will be.
For tax reasons, you should die on January first. All of the tax calculations arising in your final return, will begin with a zero base for the year. For a high rate taxpayer, compared to December 31st, the estate would save about $30,000.
The whole thing is fussy work, but you can resolve problems no one else can. Spend the trouble.
I help people have more retirement income and larger, more liquid estates.
Call in Canada 705-927-4770, or email firstname.lastname@example.org