moneyFYI
Financial Freedom Is Merely Organized Common Sense
Your Will Should NOT Contain These and More
Some people overuse their will to pass on their instructions. That tendency can be self-defeating. The common flaws:
- Your will is often not available to decision-makers at the time of death
- Some instructions in the will can conflict with other instructions
- Too much detail
- Missed or misused planning opportunities
Time appropriate instructions
Most of the time, the will is first read after death. By that reasoning, there is no expectation that instructions regarding funeral arrangements, organ donations, or life support can be implemented. They should be dealt with in appropriate documentation. A medical power of attorney would be more helpful. Instructions to family or prearrangement of the funeral are other options.
Organ donation requires specific documentation.
You will not be alive to benefit from decisions proposed in your will.
Avoid conflicting instructions
A good deal of estate planning is aimed at avoiding probate. Accordingly, life insurance policies, retirement plans, and other investment accounts are best delivered with beneficiary designations. These avoid probate. What happens if the will designates a different recipient for the asset. Four things are possible.
- A legal battle between the disenfranchised heirs and the estate.
- Unnecessary costs and possibly taxes
- If the beneficiary designation holds primacy, the deceased’s wishes may be thwarted.
Some designations by will may be contrary to another contract. If there are shares in a private corporation, is there a shareholder agreement? If there is, the agreement likely has a mandated sale to the survivors. Again, inviting a lawsuit if the will does not conform.
Some people have created a living trust to simplify probate. Their will should be created in a way that acknowledges the trust and avoids conflict.
Avoid answering why.
Every lawyer will tell you that in court, answer only the question you were asked. If possible, Yes, No, and I have no independent recollection of that matter are best. The reason they give you that advice is that conflicts invariably involve details. The more information, the easier it is to find a match or attack a position offered by the opponent.
No one has a right to an explanation of why you did what you did in your will. Any attempt to rationalize will increase the likelihood of a dispute.
Leaving Son 2 more than Son 1 with an explanation of why is unlikely to be helpful. If you have something you want to address, do it while you’re alive.
Missed or misused planning opportunities
In Ontario, it is common to distribute shares through a secondary will. This avoids probate and usually forces the client to think through the shares in the context of who owns them and what agreements address them. Private company shares are not like other assets. Know what must be probated before you design your will.
Be cautious when avoiding fees. The cost of some fees is less than the risk involved in avoiding them. A common one is using joint tenants as a form of title. The idea is to avoid fees. Think through what happens if the child becomes bankrupt or is exposed to a judgement. Consider family law. Is the change of title a disposition for tax purposes? How far will you bend your potential future life out of shape to save less than 5% of the value of an asset? You likely don’t know what it is worth within 5%; if you do, it will be different by the time you pass on.
The overall purpose of a will
The idea is to make an orderly transition of ownership of valuable things you acquired in your life. There is no reason to do anything that makes that less efficient. Delay is not your friend, and there are some factors where a delay is decidedly disadvantageous. The executor year is one to consider.
The will should be organized to minimize the cost of probate. Fees to the government, the lawyers and the trustees, are all avoidable within limits.
Your will should be appropriate to your financial condition. Keep your will up to date with the view that one of those wills will eventually be your last will. Be careful with the bequest of specific assets. You may not own them at death, and if the will has not been kept up to your circumstances, you are inviting problems.
The bits to take away
Have a will.
Be sure it is created to conform with other agreements and designations you have made already.
Know what must be in a probated will and what you can pass on in another will that does not require probate. Probate assigns the ability to deal with assets to the estate trustees. Ownership of assets like shares in a private corporation can be passed on without a court certification of the right to deal with the asset.
Decide on timing. Trusts can help minor children by preventing access to assets before they are ready to deal with them productively. Consider transfers while living. Most children inherit money when they are about 60. It would have been more valuable to them earlier. In some cases, they only notice that their income taxes became more because of the income from their inheritance.
Make it as simple as possible, but not simpler.
I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software startup, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Federal Business Development Bank.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
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