Top 10 estate planning mistakes: Oxtoby
Don’t let indecision stall your estate planning goals, says B.C. wills and estates lawyer Alison Oxtoby.
“There are often no right answers and no estate plan is perfect. Virtually any well-thought-out plan is better than no plan at all,” explains Oxtoby, partner at Entrust Lawyers LLP.
She tells AdvocateDaily.com that people often get caught up in the details. It’s one of the many missteps she sees in her practice, and inspired her to create a list of the Top 10 estate planning mistakes. They are:
#10 - Leaving the family cottage to the kids
Parents have to figure out if any of the children actually want the cottage, Oxtoby says. Often, it's assumed children will want to carry on the tradition, but vacation properties aren’t all fun and games — they come with property taxes, repairs and maintenance. Not everyone wants to sign up for that.
“If more than one sibling is interested in taking over the cottage, will they be able to make decisions together? It’s best to sort out in advance issues like shared usage and what happens when one sibling wants out. It might be best to consider a trust with funds set aside for upkeep and maintenance.”
Oxtoby says it’s also important to create an “exit strategy” so that no one is stuck owning — and paying for — an asset they don’t want.
#9 - Not planning for health-care decisions on incapacity
The worst time to discuss someone’s health-care wishes is after they’ve lost capactiy, says Oxtoby. End-of-life decisions should be made in advance and one’s wishes should be made known to family members.
One way is through advance directives, which are written instructions about what medical procedures you want — or don’t want — if you become incapacitated. It takes the pressure off family members trying to decide in the midst of a health-care crisis, says Oxtoby.
“In B.C., these are governed by the Health Care Consent Act and Care Facility Admission Act, but they don’t authorize someone to act on your behalf. If that’s what you want, you have to create a heath care representative agreement," she explains.
#8 - Not granting a Power of Attorney (POA) for financial decision making
Sometimes, people don’t name a POA because they don’t want to give up control of their affairs, says Oxtoby. But without a POA, loved ones will have to apply to the courts for a committee to be appointed if they need to transfer land or access bank or investment accounts. Legal fees for a committeeship application are typically between $5,000 and $10,000, she says.
“Choosing poorly comes with its own set of problems. For example, giving power to one child can create tension between siblings, while naming more than one child can also lead to tension if the siblings can’t get along,” says Oxtoby.
“The bottom line is you should think long and hard about who you’re going to name and make sure that person is right for the job.”
#7 - Not clarifying wishes for personal effects and funeral
“It’s not always about the money,” says Oxtoby. “You have to consider the emotional importance of personal assets. Often, parents incorrectly assume they don’t have anything the kids will fight over. The best approach is to talk to your children while you’re still alive and make sure your wishes are known to everyone.”
The same goes for one’s will — make sure loved ones know your wishes in advance.
#6 - Selecting the wrong executor or trustee
Oxtoby says a good trustee or executor should be financially savvy, impartial, trustworthy, willing, and preferably younger than you and in reasonable health. They should also live fairly close and have time to handle the responsibilities that go with the job.
#5 - Failing to consider and update beneficiary designations
Naming beneficiaries on life insurance, RRSPs, RRIFs, and TFSAs helps pass assets outside of probate and can “minimize probate fees, delays and Wills Variation Act claims,” Oxtoby explains.
She says it's particularly important to consider appointing alternate beneficiaries behind the surviving spouse, or to reconsider beneficiary designations upon the death of the first spouse.
#4 - Using joint tenancies improperly
There are several options for joint tenancy that can help reduce probate fees and executor fees, but they come with potential problems.
Oxtoby says recent court cases, such as Pecore v. Pecore, Madsen Estate v. Saylor and Sawdon Estate v. Sawdon, "serve as stark reminders that parents should never add a child’s name to bank accounts or other property without first obtaining proper legal advice. While assets held in joint names may work in some cases, it might be better to consider using a trust or an alternative strategy."
#3 - Planning into wills variation litigation
In Oxtoby’s home province of British Columbia, the courts can vary a will if the will-maker has not adequately provided for a spouse or child — even independent adult children.
“That’s why it’s important in B.C. to get proper legal advice before leaving a spouse or a child out of an estate or leaving an estate unequally between children,” she says.
#2 - Failing to consider probate fees and income taxes on death
In B.C., probate fees are 1.4 per cent of the value of the assets in the estate and are payable to the court when an application is made to probate your will.
“There are steps you can take to minimize the fees, such as creating trusts and joint tenancies, designating beneficiaries on various registered plans and gifting assets while you’re alive,” explains Oxtoby.
#1 - Leaving everything to your second spouse trusting that it will end up with your kids
“Don’t assume your second spouse will look after your children from your first marriage,” warns Oxtoby. “Despite the best of intentions, as time passes, a surviving spouse can become vulnerable and may be influenced by their own children — often to the detriment of children from the first marriage.”
Oxtoby says there are ways to look out for one’s children from a first marriage, including testamentary spousal trusts put into wills; alter ego or joint partner trusts; beneficiary designations; and spousal agreements.