Peter Boys, Boys Financial Services

Are You Planning on Leaving an Estate? Part 1

estate planning

Leaving an inheritance to one’s heirs can make a significant difference to their financial well-being. But when money is involved, there are a number of factors to think about that can lead to stress and conflict with the family members unless steps are taken ahead of time. Here are some things to consider.

We’re living longer: For a healthy 65 year old couple today, the husband can expect to live to age 80 plus and the wife to 84 plus. This has implications if children are expecting an inheritance, perhaps sooner than reality may dictate and who may be counting on it.

Don’t underestimate your expenses in retirement: Estate planning requires an accurate estimate of what you’re likely to leave behind. But don’t forget that care costs as you age can be significant. The cost of care in a nursing home, in-home care or home renovations to accommodate age-related issues could completely derail your plans to leave an estate.

Dementia can become a huge burden on your family: Siblings can easily become at odds when a parent suffers from dementia as they try to figure out what to do with the money and assets. Don’t leave anything to chance, or assume that the kids will agree on things. Have an enduring power of attorney to provide authority to a trusted individual to make financial decisions for you. Prepare a written letter of wishes to provide guidance to the kids about how you’d like to see your money and assets managed. Then sit down and share that letter with your kids and have a conversation with them while you’re still thinking clearly.

Your children may have a lot of debt: Canadians now carry a lot of debt, often not due to poor spending habits but more a reality of the cost of buying a home today. Your children could benefit from any inheritance to help pay that debt down, but you may want to consider helping them out while you’re still alive.

Ensure they understand the conditions with any money given: If you transfer any money to children while you are still living, be sure they understand whether it’s a loan, an advance or a gift. Loans are usually repaid during your lifetime or to your estate if you die prematurely. Any advance on their inheritance will reduce what they receive after you’re gone. Gifts do not have to be repaid.

It’s important to document loans or advances so that the amounts are tracked. Your executors will need to understand what your intentions were with these loans, advances or gifts, where to find a summary so that a proper accounting can be made. Unclear intentions may result in a battle among heirs when it comes to figuring out amounts to be distributed.

One way to simplify the process is to have most of the estate assets held in life insurance policies or investments with named family members as beneficiaries. Any registered assets such as RRSPs, RRIFs, and TFSAs can be paid out directly to family beneficiaries thereby bypassing probate and providing privacy. Some parents put children on as joint owners with them on bank accounts or property, but this comes with some risks from fraud, divorce, bankruptcy, etc.

This is the first of two articles which I provide some insights into family estate and probate issues. I will cover more issues in the next article.
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