A lawyer says she often sees situations in which a will assigns assets to specific heirs, yet different heirs are listed as beneficiaries for registered accounts and insurance policies.Wiroj Sidhisoradej/iStockPhoto / Getty Images
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What makes a good will beyond having an updated one?
Testators need to put more thought into issues that could turn into a ticking time bomb and cause family squabbles, says Les Kotzer, wills and estates lawyer at Fish & Associates Professional Corp. in Thornhill, Ont. and co-author of The Wills Lawyers – Their Stories of Money, Inheritance, Greed, Family and Betrayal.
Mr. Kotzer has found some executors named in wills should be updated to another person.
“For example, uncle Fred was the executor because the person’s kids were under age of 18 at that time but now the kids are in their 30s and maybe it’s time to think about naming your now adult children as executors,” he says.
Some parents may think the eldest child is the best person to serve as executor instead of basing the decision on which person has the strongest competency, administrative, and communication skills to handle an estate.
Mr. Kotzer has seen executors turn into “family dictators” as they wrongly believe the role gives them the licence to do as they please, regardless of what the will says.
“If you have three kids, you might consider appointing all three as executors with a majority rule clause so there’s a democracy in dealing with your estate,” he says.
Mr. Kotzer adds that some people want to appoint executors who live outside of the country, which can be a logistical nightmare. The person would most likely need to post a bond to even become an executor.
Protect future assets
In the case of families, people like to leave their assets first to their spouse, if applicable, and after that, their children. But when it comes to extending those assets to their children’s spouses and partners, that’s an entirely different story.
Mr. Kotzer has found most clients don’t want their daughter-in-law or son-in-law to benefit from what they have left for their children if they divorce or separate.
Yet, many wills he reviews don’t have a protective clause that shelters the growth and capital gains on the inheritance left to the child in the event that child divorces or separates from their spouse.
“Parents think if I leave it to my daughter or son, their spouses can’t touch it,” he says. “Parents don’t think about protecting the growth made on that inheritance.”
Document rationale behind decisions
Mr. Kotzer recalls a client who originally wanted all assets split equally between her three children. But as the years progressed, one of her daughters became her full-time caregiver and she reconsidered her stance on how to best divide her assets.
“Why should [my caregiver] get the same as the other two kids who never help me?” she had told Mr. Kotzer.
In this case of outright excluding someone, the client should provide evidence and reasons for their decision via a letter of wishes, says Laroux Peoples, a wills and estates lawyer in Toronto.
“Sometimes, I’ve drafted a supplementary affidavit explaining why they’re excluding the person from their estate,” she says.
“Other times, the lawyer will do a video-recorded interview with [the testator] explaining their choice and keep that in the file.”
The idea is to avoid an estate fight later on, she says. The more evidence you have other than the name missing in the will, the more likely it can withstand a will challenge.
Ensure heirs mirror beneficiaries
Ms. Peoples will often see situations in which the will assigns assets to specific heirs, yet will find different heirs listed as beneficiaries for registered accounts and insurance policies.
“If their beneficiary designations are not up to date, then the will won’t work the way they wanted,” she says.
She adds that it’s awful to see this inconsistency happen with couples. When one spouse passes, assets will flow to the surviving spouse tax-free if the will and beneficiary designations are set up that way.
Consider special needs
Ms. Peoples always asks her clients whether any of their heirs are on government disability benefits. She says inheritances for people in those situations need some careful planning or they risk losing those benefits down the road.
“In each province, set rules exist on what a person on disability support program benefits can receive in terms of inheritances,” she says.
If an heir were to suddenly receive a $100,000 cash inheritance, for example, the program may cut them off as the person would be deemed as no longer needing any disability benefit support.
“The inheritance is likely not enough to live on forever and now they find them disqualified from the program,” she says.
Having assets available in a Henson trust – a discretionary trust set up upon death on behalf of a disabled or special needs person – would avoid the issue. The heir would be named as a plan beneficiary to the Henson trust.
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