Canadians have traditionally left most of their estate to close family members upon their death, but with blended or non-traditional families becoming more common, experts say this practice is slowly changing.
Laura Cardiff, partner at Casey and Moss LLP in Toronto, said people who are living together in relationships outside of a nuclear family often want to honour those relationships in their estate plan. However, they should exercise caution when doing so, she said.
“As a society, we have this idea that your wealth should go to your family. So if you’re doing something else, although you’re totally entitled to do that, it’s worth bearing in mind that you’re departing from what’s seen as a norm and what the law treats as a norm,” she said.
The passing of assets between loved ones is top of mind for some amid what’s expected to be the greatest generational wealth transfer in Canadian history, according to Chartered Professional Accountants Canada. Between now and 2026, the umbrella organization for accountants estimates around $1-trillion will be handed down by baby boomers to their Gen X and millennial heirs.
The great wealth transfer is under way. But what if you don’t trust your kids with the money?
Every province and territory has its own legislation regarding which family members – if any – a will-maker has obligations to, said Zach Murphy-Rogers, a partner in the estates and trusts group at Clark Wilson LLP in Vancouver. For example, in B.C., spouses and children can challenge an estate if they feel they have been unfairly disinherited, he said.
Ms. Cardiff said leaving assets to friends rather than family can lead to disputes if relatives don’t understand the reasoning behind the deceased’s decisions. For example, in Ontario, family members can challenge the validity of a will on the basis of undue influence or lack of capacity.
“Then you’re leaving your friends the gift of litigation, rather than what you intended, which was something that would actually benefit them,” she said.
To avoid challenges by disgruntled family members, Mr. Murphy-Rogers said it’s worth considering transferring wealth to friends or non-family members before death, or naming them as beneficiaries on registered accounts such as a TFSA or RRSP.
In some cases, it could also be worth naming a non-family member as a joint owner of a property, car or bank account, Mr. Murphy-Rogers added. “When you pass away, they would become the surviving owner of that item and it would be theirs to keep.”
Above all, he said communication with friends and family is the most useful strategy. By sharing plans before death, Mr. Murphy-Rogers said the wishes of the deceased are much more likely to be honoured by loved ones.
“If you’re planning on giving a large gift to an atypical beneficiary, it would be terrible for people to learn about that after you’ve died and after they’ve read your will,” Mr. Murphy-Rogers said.
Ms. Cardiff said it’s also hugely beneficial to work with a lawyer who has experience in estate planning and will drafting, because they will take care to note the reasons behind their clients’ decisions.
“That goes a long way towards heading off any legal challenges that come down the line later,” she said.
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