Death and Taxes - Estate Planning Mistake 1

Every year, billions of dollars are transferred from one generation to another in Canada. Unfortunately, many of us don't take the proper precautions to make sure our wishes are carried out in the event we should pass away. I've heard everything from "I don't want to think about a will right now" to "If I make out a will, I feel like something bad is going to happen to me." By ignoring the need to draft a comprehensive will, something bad will definitely happen to your family.

Let me be the first to admit: At some point after I publish this article, I am going to die. It will probably be at 105 years old (and due to being shot by a jealous husband rather than natural causes) but it is going to happen. Life is a pre-existing condition with a 100% mortality rate, which means you are going to die too. Hopefully not for a very long time - but it is going to happen.

You do have a choice, though. You can choose:

1. Have an orderly transfer of assets, with the lowest amount of taxes paid, while protecting your family from disputes, debts and heartbreak.
2. Family disputes, debts and heartbreak; allowing the government to intrude into your private affairs, making them as public as possible without the help of neon signs and a loudspeaker.

For the next few Death and Taxes posts, I'll lay out the most common mistakes we make with estate planning and how to avoid them.

Mistake #1: Not Having a Will
This is the biggest, most common mistake. It's also the easiest to fix, which is why it simply shouldn't happen. A will lets everyone know your intentions for your assets and how they will be distributed in the event of your death. It also lets you choose who is responsible for managing the estate (The Executor) and who will be the guardian of any children still under the age of 18. By having a will, your estate should be managed responsibly and you may be able to save money on taxes and probate fees. There are many ways to go about having a will written, but I always, always recommend visiting a competent estate lawyer.

Have a conversation about your wishes for when you pass away and have your lawyer draft a will that fulfills those wishes. I've heard grumbling about the price of drafting a will (usually in the $500 range, but the price can go up if your financial and property affairs are more complicated), but think about this for a moment. Consider the time, taxes and grief involved in sorting out an estate that has not been organized by a will. If time is money, it will always be more expensive to not have a will than to have one. If you don't prepare a will and die intestate, the provincial court will appoint someone to administer the estate. That person usually ends up being a spouse, adult child, grandchild, parents or siblings.

If no one is willing and able to take on the administrator's role, then the province will appoint someone to take that role instead. This person, the Public Trustee, will:

1. Make funeral arrangements
2. File the tax returns
3. Pay creditors, and
4. Charge fees all along the way.

By allowing a Public Trustee to take over the administration of the estate, you are letting the government dish out your hard-earned money and property. The same government we hardly trust to spend our tax dollars responsibly is now responsible for the entirety of your assets. And charging you a fee to split up your assets in a way that you might not even want.

I don't think I need to explain any further why going without a will should NOT be an option.

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