By Karin Mizgala, co-founder and CEO Money Coaches Canada
A few months ago, my brother-in-law passed away. He had a heart condition but was only in his early 70’s so we were all unprepared to lose him so soon. While thankfully some estate planning was in place, the legal documentation wasn’t as accessible, up to date or legally binding as it could have been.
When my father was diagnosed with terminal pancreatic cancer, we had a few months to make sure that we said our good-byes and that all the legal paperwork was taken care of. More commonly though, death is sudden and unless robust estate planning has been done in advance, bereaved families are often left with legal and financial headaches.
There is huge inertia for most of us around planning and organizing for death, illness or disability. I get it. Who wants to deal with uncomfortable topics, let alone pay a lawyer hundreds of dollars to deal with issues we’d prefer to avoid altogether! Over the years I have had to coach, cajole and pester many of my clients to take action on their estate plan. But once it’s done, they are all relieved to have this important task ticked off.
While the benefits of estate planning aren’t immediately apparent, the time, money and energy you can save yourself or your loved ones in the future is enormous. The stress that my niece is still experiencing months later dealing with banks, investment firms and lawyers around my brother-in-law’s estate is an up close and personal reminder of the importance of planning, proper documentation and revisiting estate documents.
Here are some of the top estate planning mistakes I’ve seen and actions you can take now to avoid them.
1. Scrambling to find wills and other legal documents
When my brother-in-law passed away, he left a surviving spouse who unfortunately is suffering from dementia and incapable of dealing with legal or financial affairs. Their only daughter (my niece) knew there was a will and a power of attorney appointing her to handle her mother’s affairs, but it took her weeks to finally locate them. She had some knowledge of her parent’s finances but not enough to avoid a lot of stress trying to decipher legal, banking and investment documents. An only child, all this was happening while she was grieving, organizing a funeral and caring for her mother. She wasn’t sure who to turn to, who she could trust and even what questions to ask. Other family members pitched in, but in some cases, it was too little, too late.
Tell the appropriate people where your financial and legal documents are kept. Make sure they know who your lawyer, financial institutions and financial advisors are. If people don’t know you have made plans and how to access them, the plans won’t do you or them much good.
2. Legal documents improperly signed or witnessed
When my niece found the document that appointed her as the power of attorney for her mother’s financial affairs, she was much relieved. She took it to the bank to be activated so she could manage her mother’s finances. Unfortunately, the bank lawyers noted that the person who witnessed the signature on the power of attorney document was my niece’s husband. This was not an acceptable witness given that he potentially could benefit financially from her mother’s finances. It has now been 8 months since her father’s passing and my niece is still working with lawyers and the bank to come up with a viable solution.
I can’t stress enough how important it is to get legal and financial help from estate planning professionals. The consequences of improperly signed or witnessed documents can be serious. If you use DIY legal document kits, be very careful that you are following all the instructions exactly. Financial institutions will carefully review all legal documents they receive to protect their clients from potential financial elder abuse and to protect themselves from paying out to the wrong beneficiaries. Even if your estate is simple, you’re better to use qualified professionals than risk problems later.
3. Out of date estate and power of attorney documents
There are three primary legal documents that you should have in place. A will, a power of attorney for financial affairs and a health care directive. These documents will be slightly different depending on the province you live in and in most cases can be drawn up by either a lawyer or other legal professional like a notary or notary public.
As my niece found out, it isn’t enough to have a will in place. The one she found for her father was over 20 years old and out of date. Her mother was named as executor but due to her dementia was not able to act in this role. To make matters worse, the alternate executor had passed away the year before.
Estate planning isn’t a one-time event. People you appoint as an executor or power of attorney may move away, die, become incapacitated or otherwise be unable to act on your behalf. Make sure that you review your legal documents every 3 years to confirm that they still reflect your current wishes and that the executors and power of attorney are still appropriate. If you haven’t appointed an alternate executor or power of attorney, it’s time to do so.
4. Paying more fees than you need to
The difficulty that my niece is having with the invalid Power of Attorney is not only costing her in terms of legal fees, but she can’t access the bank accounts to pay her mother’s bills. Fortunately, her father had the wisdom to designate beneficiaries on his insurance policies, RIF and TFSA accounts. Because of his wife’s incapacity, he left some of these funds directly to my niece so she could pay for her mother’s care.
By designating beneficiaries, the funds from these accounts fall outside the jurisdiction of the will, thereby avoiding probate fees. (Probate is a legal process to determine the validity of the will). In my brother-in-law’s case, this strategy also avoided the legal hassles and fees that would have been incurred since the executors in the will were unable to act as a result of incapacity (his wife) and death (his brother).
To avoid unnecessary probate fees, make sure that your RSP, TFSA, pension, and life insurance policies all have up to date beneficiary designations. If you aren’t sure, contact the financial institution or plan administrator for each of your accounts. You can also avoid probate fees if assets like your home, bank account and vehicles are held in joint names. Joint ownership works best between spouses as there could be tax or legal implications for holding assets jointly with others.
5. Forgetting about charities that are important to you
Taking the time to think about the legacy you want to leave behind is an important part of the estate planning process. While most of my clients favor spouses, children and other family members as beneficiaries of their estate, there is usually room for some form of charitable giving. There can be tax as well as emotional benefits to leaving money to charities.
Meet with your financial planner and discuss the best way to leave monies to your favourite charity. This could be a specific dollar amount, specific securities (like stocks which could save on capital gain taxes) or a percentage of your assets. If a tax benefit is important to you, make sure that the cause you want to support is one of the over 1,700 Canada Revenue Agency registered charities or non-profit organizations. Even if you have children, why not consider leaving a small amount to the causes and organizations that are important to you?
Talk While You Still Can
It may be difficult to talk to people about your estate plans, but it’s much better for everyone if you do.
Ultimately, you want decisions about your assets, your medical treatments and potentially your death, to be your own, but it’s important to recognize that it could be difficult for family members to fully appreciate your wishes if they’re in crisis. Talking with them and writing a clear plan now gives you an opportunity to address their concerns and express your point of view.
Talk to a Money Coach today about the benefits of a pro-active financial and estate plan.