Changes to asset value may create unintended will inequities
By Jennifer Brown, AdvocateDaily.com Senior Editor
It’s important to periodically track changes in value when bequeathing specific assets to individuals in your will, says Toronto trusts and estates lawyer Patrick J. Aulis.
Real estate values and stock market changes can radically alter the worth of an asset over time, and that could create an unequal distribution of your estate, says Aulis, founder of Aulis Law Firm Professional Corporation and North York Mediation.
“Let’s say you do your will and leave your cottage to one child and a sum of money equal to the cottage to another child. As time goes by, if you sell the cottage and don’t think to address your will, but you pass away, you could have a situation where the person who was to receive the cottage is not provided for, and the other child still has the sum of money,” says Aulis. “You’ve unintentionally created an inequality that favours one child over another because that asset is no longer there.
“To my mind, that would be one of the most egregious situations,” Aulis tells AdvocateDaily.com.
You can also have a change in value occur with assets such as real estate, or investments in the stock market, particularly during hot markets. For example, a few years ago, Aulis was reviewing a will in which the testator had left a Toronto bungalow to their daughter and an equal amount of money ($300,000) to their son. However, after 10 years, the house was worth $800,000.
“It was not their intention to benefit the daughter in excess of the son,” says Aulis.
Other scenarios involving fluctuating investments can also occur.
“Let’s say there is a stock market decline, and you leave a different mix of investments to your two children, and one stock collapses entirely — you have one beneficiary that is penalized compared to the other, which was never intended,” Aulis says.
Aulis advises clients to draft wills that are more flexible and less specific in nature.
A client recently asked Aulis to assist her in putting her home in joint tenancy with three of her five children. She had owned the house jointly with her husband, who had recently passed away.
He advised her that doing so would mean the asset would not flow through her will at the time of her passing, potentially leaving the other two children out.
“The majority of wills I do are largely residue wills, which means whatever you own at the time of your death that you haven’t otherwise specified in your will shall be divided,” he says.
That means you could leave $20,000 to a specific person, then indicate the residue of the estate be split between a spouse and children, Aulis says.
“If you have a will that is drafted in that fashion it is more of a mechanism than identifying a specific amount or asset. It tends to ride the wave of changes in value or disposition of assets, especially with people who are younger and may have a considerable change in assets in terms of value from now to when they pass away,” he says, adding that there are people who take a great deal of pride in handing out specific assets.
“In those situations, you have to be on the ball in terms of when those assets may be changing in value and update your will accordingly,” Aulis says.