Common estate planning mistakes

Each year, billions of dollars in assets are transferred at death.

Here are some common mistakes to avoid so your estate goes to the people and causes most important to you in the way you intended.

Failing to update your will

A will communicates your intentions and allows you – not the government – to determine how your assets will be distributed. The low cost of a “do-it-yourself” will is tempting but working with a lawyer and financial advisor can help you cover contingencies, avoid legal loop holes and, potentially, save thousands in tax and probate fees.

After you’ve written your will, revisit it in light of important life events – births, divorce, marriages, etc. – that can have implications for your estate.

Treating equal beneficiaries unequally

Often splitting your estate with the intention of beneficiaries receiving different assets of similar value can be unfair after taxes are considered. A $300,000 house is worth much more than a $300,000 RRSP/RRIF after taxes.

Spousal issues

After divorces and re-marriage, it’s critical to review the beneficiaries of your will, your pensions, your insurance policies and those named on investments like RRSPs. Without addressing those changes, your estate can go into the wrong hands, costs thousands in taxes, and pensions may go uninherited.    

Minor beneficiaries

Generally, death benefits cannot be paid directly to minors. If you name a child as beneficiary without naming a trustee to take care of the inheritance for them, the funds are often paid into court or the public trustee for managing.

Failing to name a beneficiary on insurance contract/investment

Unless there is a specific reason to have assets flow through your estate, it may be better to name beneficiaries directly on an insurance contract. At death, proceeds can be paid directly to named beneficiaries privately, outside probate and usually within two weeks of the insurance company receiving proof of death documents.

By having death benefits paid outside your estate, you can reduce probate fees, avoid creditor claims on these funds and delays related to the probate process or challenges to the will.

These are only a few of the possible mistakes that can happen if estates are not properly planned. Seek out the advice of a capable estate lawyer and experienced financial advisor to help ensure your assets are distributed as you wish.   

Submitted by Dan Allen, a financial advisor specializing in retirement income and protection planning.  

 

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