This is a continuation of my July column in the Medicine Hat News with my Top 10 estate planning tips. If you missed Tips 1-5, you can find them here.
If the gift is property make sure it is accurately described so it can be easily identified as you will not be around to clarify any uncertainty. Also, include in your Will what happens to your specific gift if, at the date of your death, the person you have named to receive your gift has already died or the charity you named has ceased to exist. It is important to have a back-up plan for these gifts and put it in your Will. If the recipient of your gift has died before you, does your gift fail or does it go to someone else? If the charity you are interested in no longer exists, does the charitable donation fail or does the Personal Representative (PR) of your estate have the discretion to make the gift to another charity with similar goals you wish to support. When making gifts to charities consider whether the charitable donation is for a specific purpose or whether it is for the general purposes of the charity so the charity’s governing body can decide how best to use your donation.
Most parents want to treat their children equally. Remember- equal and fair do not mean the same thing! Each of our children face their own unique challenges. A child with special medical needs may require a greater share of your estate to help them with the increased medical costs they will face. When should a child receive their inheritance? Without any direction in your Will, children will be entitled to receive their inheritance at age 18. Most of us realize what we might have done with a lump sum at age 18 and we don’t want our children to have that much fun! Consider giving your PR the power to hold your beneficiary’s share in trust for them for a period of time you select. The terms of this trust should specify your PR has the discretion to make payments for the benefit of your beneficiary during the period you select. At the end of the period the trust is terminated and the balance remaining is paid to your beneficiary. Again, it is important to consider a worst case scenario. What happens to the trust money if your beneficiary dies before the trust is terminated? Without specific directions about this possibility in your Will, you risk your family members disagreeing about what you intended.
What happens if one of your beneficiaries does not have the capacity to handle their inheritance? If the gift is left outright to them if must be paid to the Trustee of their estate. If your Beneficiary doesn’t have a Trustee, your PR will have to bring an application for a Trustee to be appointed for this beneficiary. It is easier, more effective and less expensive for you to have a provision in your Will for this gift to be held in trust for your beneficiary. The terms of the trust are set out in your Will and specify how the inheritance can be used for the benefit of your beneficiary. The trust will then direct what happens to any money remaining in the trust on the death of your beneficiary.
Make sure these designations are up to date as these monies are paid out or transferred outside your Will. It is important to consider changing your beneficiary designations in these investments you’re your personal circumstances change – for example, if your named beneficiary dies or you separate from or divorce your named beneficiary. Also, consider where the tax owed on your RRSP or RIF will be paid. If your RRSP or RIF beneficiary is not your spouse, your beneficiary will receive the full benefit of the RRSP or the RIF and the tax owed on the RRSP or RIF will be included in the terminal tax return filed after your death. This means your estate will have to pay the tax owed on the RRSPs or RIFs. It won’t be your named beneficiary who will pay the tax. So, if the beneficiaries of your estate under your Will are different than the beneficiary receiving your RRSP or RIF, the beneficiaries of your estate will end up paying the tax on money they do not receive.
Online banking, online shopping, and social media (Facebook, Twitter, LinkedIn etc.) are the norm. It is important to make it as easy as possible for your PR to be able to deal with these assets. Have you set up a secure method for informing your PR of your accounts, logins and passwords? It will be much easier for your PR to close your accounts, pay your bills, and deal with assets you have been managing electronically if they have timely and effective access to your information. How online providers will work with the PR of an estate to close or transfer digital assets will be subject to the terms of the licensing agreement. It will be easier for your PR if your Will authorizes your PR to close or transfer the digital asset and give them the authority to access the login and passwords.
In last month’s column I stated, Plans don’t fail. People fail to plan. These 10 tips will help you develop an estate plan which will effectively meet your goals.