Life can throw us many challenges including a life-threatening illness or a sudden death. We may not be able to prevent these catastrophes from occurring, but we can ensure our loved ones are taken care of, giving us the peace of mind to enjoy every day to its fullest.
With estate planning, you do not have to have great wealth and fortune or own large pieces of land. Planning your estate involves having your financial obligations, end-of-life care, and last wishes documented. It can help reduce the burden on your family while protecting your monetary worth from probate and taxes.
Taking control of your future, and the future of your loved ones isn’t as hard as it sounds with the help of the right professionals. In this article, we look at the common mistakes made with estate planning in Canada to help you and your loved ones avoid financial and emotional stress.
Not Having an Estate Plan at All
The first, and most common, mistake with any estate planning is not having a legalized estate planning document prepared. At the time of one’s death, the surviving family members and any business partners are grieving and sometimes are in a state of shock. Having a comprehensive plan for your death can help guide those left behind on your last wishes and the direction of your financial state.
Failing to Prepare for Incapacity
Documenting your last wishes is one thing, but another important aspect that is often neglected is preparing for incapacity. A will begins at the end of life while a Power of Attorney (POA) addresses issues while you are living. If an individual cannot mentally, emotionally, or physically give consent, a POA can transfer consent for an individual’s finances and/or healthcare to an elected person.
Gifting Too Much Too Soon
A common estate planning mistake is gifting a large amount of property or money too soon. This is seen when an individual doesn’t want to wait until after their death for their child(ren) to gain their inheritance. Whether it is for enjoyment or for tax purposes, life has a way of throwing curveballs that can change the retirement plans of the individual. Investments can tumble, interest rates increase, property values fluctuate, and if the person’s health declines, money may be needed.
Not Considering Your Children’s Wishes
Yes, estate planning is about the wishes of the individual, but it also affects the family and/or loved ones. One should have a conversation with their adult children to get a better idea of what is expected upon their death. Far too often, the will is contested by the surviving members of the family, usually in regard to monetary amounts or “gifts”.
Not Equalizing the Inheritance
Inheritance is considered the ultimate last parting gift a person has for their surviving children. In most cases, the person’s estate is intended to be split equally. This becomes problematic when the inheritance includes property and investment portfolios due to taxes and fees.
Not Drafting a Co-Ownership Agreement
Failing to protect the assets with a co-ownership agreement can see the surviving partner left with little to nothing upon their loved one’s death. Most property (home or business) ownerships require a co-ownership agreement to dictate what will happen when a co-owner passes.
Transferring Assets to a Minor Child
When creating an estate plan, the ages of the beneficiaries is important to note. As minors cannot be gifted death benefits or property, any portion of the estate is “frozen” until the child reaches the age of majority in that province. A trustee should be selected to represent the minor child’s behalf along with a detailed outline of any investments to be made until the child reaches the age of majority.
Not Making Provision for a Secondary Beneficiary
Like death, having the thought (and discussion) of needing a second beneficiary is frequently avoided. A secondary (contingent) beneficiary is designated in the event of the death of the primary beneficiary or if the primary beneficiary disclaims or is incapacitated.
Not Considering Income Tax
Every estate planner will advise a person to consider the effective income tax will have on any form of inheritance left upon one’s death. While taxes are inevitable, there may be ways to reduce the tax burden on the estate and on the beneficiary property. While there is no inheritance tax in Canada, there is an estate tax as well as potential capital gains to be calculated.
Not Knowing the Attribution Rules
The attribution rules are in place to protect the tax system as a whole. Without it, an investment income could be transferred to another member of the family with a lower-tax bracket, therefore reducing the taxes of the original owner. To avoid attribution rules with estate planning, there are allowable options to consider and discuss with a reputable real estate or tax lawyer. These include, but are not limited to, gifting adult children monetary amounts, maximizing deductible Registered Retirement Savings Plan (RRSP) contributions, or depositing government-funded monies into a Registered Education Savings Plan (RESP).
Considering who is on Title to your Home
It is very important to ensure that you check the title of your home as part of your estate planning process. If the title to your home is held as joint tenancy, then the title will automatically pass to the surviving owner. However, very often, couples think that title is held in joint tenancy when in fact it turns out not to be held as joint tenancy. Don’t presume this and get it checked out. Also, you should carefully consider whether it is beneficial to transfer the title to one of the beneficiaries of your estate prior to closing to save probate fees. This should not be done automatically as there are important tax considerations but can be of benefit depending on the circumstances. You should discuss this with your real estate lawyer or estate planning lawyer as may be needed.
Contact Zinati Kay – Real Estate Lawyers in Scarborough
For a comprehensive guide, contact Zinati Kay – Real Estate Lawyers as your estate planning lawyer in Scarborough. We understand estate planning is more than just a will. It is an inclusive and compassionate method of easing the burden on your loved ones. Call us today at (416) 321-8766 and see how we have helped close more than 25,000 real estate transactions in the Greater Toronto Area.