Avoiding will planning mistakes
Once upon a time, buying a wills kit from a retailer may have been a good choice. Everything goes to the spouse. If spouse predeceases you, everything goes to the surviving children. Uncle Jack and Aunt Helen are the guardians of the kids. Simple right?
However, a will kit presumes the will-maker has a “traditional” nuclear family. But the married couple with children has recently become a minority of the population and, along with it, the shrinking notion that there is such a thing as a “simple” will.
In a world of multiple marriages, separated couples, same sex marriages/unions, step-children, adopted children and dependent parents, will planning is no longer that simple. Since the estate generally pays for legal fees in a dispute for both the executor and beneficiary challenging the will, it is best for the will-maker to get it right lest the assets of the estate are drained for the lawyers and no one else. What top three will planning mistakes should you avoid?
It starts with the executor. Executors occupy a very difficult position. They must report to all the beneficiaries, your creditors and the tax man. The typical reflexive response is to name your spouse the executor. However, if your spouse is not good with finances (and knows it) or you have a lot of young kids, it may not be wise or fair to burden your spouse with such responsibilities (when the kids get older, you can amend the will to name your spouse as executor). In some jurisdictions (including Canada), the executor is personally liable if taxes are not fully paid during the winding up of an estate. Thus, saddling a person without the skill or experience to hand an executor’s responsibilities can also get them into personal trouble.
(some of you are probably wondering “just have the spouse/executor hire a lawyer/accountant to do their job…” The issue with this approach is fees incurred by professionals for executor duties are taken out of the compensation paid to the executor by the estate. In heavily leveraged/indebted estates, the executor compensation many constitute the bulk of distribution)
Where the spouse is the 2nd or 3rd spouse and you have financial obligations to ex-spouses or your kids from previous relationships, the spouse as executor may not act with an even hand; lack of communication from an executor is often the harbinger of estate litigation since beneficiaries think silence means something bad is happening. You may end up with the litigious extended family.
There are several solutions. Partner the over-burdened or unqualified spouse with a steady hand- a relative or friend with financial acumen- to share the workload. Appoint a relative or friend with financial acumen to act as executor while the family is younger. As the family ages and child care responsibilities lessen, change the will to name the spouse the executor. Finally, as your accountant or lawyer to act as executor personally, and their firm can be hired to undertake the legal and tax aspects of the estate (which is work typically not classified as executor work and these fees would be earned in addition to executor fees).
Do not write out dependents. Hate the wife and secretly plot to get your revenge from beyond the grave? Many jurisdictions now have laws prohibiting the spouse to be written out from a will. The spouse can simply elect to take at least half (in most cases) of the estate. More problematic, and costly, is writing out dependents. A dependent- think spouse, child, sibling or parent- has the right in many jurisdictions to claim continued support from the assets of the estate if they were being taken care of during your life. In other words, if you paid your deadbeat brother $500 a month for living expenses, he can seek to continue such arrangement after your death (the practical solution to this issue is to cut the deadbeat brother off).
If you are going to write an immediate family member, other than your spouse, out of your will (assume no ongoing dependent relationship at death), some lawyers recommended that the reason for the exclusion be specifically provided. For example, if your daughter was given $20,000 extra to attend school over your son, you may want to state your daughter receives nothing since she got more during life. Perfectly reasonable reasons for exclusion make challenges to wills more difficult (note that exclusions based on human rights issues- son is written out for marrying a Catholic- can be over-ruled if challenged on the grounds of public policy).
Cottage= headache. No other asset tends to create a larger issue than the cottage. Mom and Dad’s residence at death may be too small, too old or too far away for any of the kids to want but the cottage tends to hold emotional attachment to the surviving family members. Short of selling it to a non-family member, the solutions tend to be impractical mainly, divide it evenly among the kids (unwieldy if there are lot of children), put it into a trust (there are costs incurred to pay the trustee and people tend to bicker over time allocations) or give it to one child (creates jealousy).
My lawyer will once said her general advice was to sell the cottage and divide the proceeds. It makes no one happy but at least it solves the issue quickly. The other alternatives are either the above or to compensate the non-cottage recipient with something of equal emotional worth (if it exists).
The final point is people change. It is prudent to check your will after large life changes or every 5 years or so to ensure it matches your current state of affairs and wishes. Good luck.