** Special to The Just Word Blog from Jennifer Black, CFP, FMA, CIM, FCSI, DFS Private Wealth **
Most people are uncomfortable with the subject of death, and this makes it difficult to discuss and take the necessary steps required for proper estate planning. Unfortunately, not addressing the issue while you have the luxury of time may cause problems in the future at a time when grief and stress levels can be overwhelming. Here are a few examples of common estate planning mistakes that individuals or families make either knowingly or unknowingly and some potential consequences that may occur.
Not having a joint account
Many married couples have a joint account for paying bills, but also keep an individual bank account separate from their spouse. Maybe their pay goes directly into this account and then they transfer money to the joint account each month. For example, John and Mary both work and each hold separate bank accounts into which their salaries are deposited. If John dies, his bank account will be frozen and Mary will not have access to it, possibly for months. The bank will not allow a withdrawal until they have documentation proving that Mary is the rightful beneficiary of the account. Will Mary have enough money to pay all the bills while this process is taking place? This problem can be avoided. If the bank account is in joint names with “rights of survivorship”, it would have been accessible to Mary after the loss of her spouse.
Not having a will
The purpose of a will is to specify exactly what you would like done with your assets when you die. It can also specify who you have chosen as guardian of your underage children. Without the will to clarify everything, the government must take control of the process and follow pre-set “estate” rules. Applications must be made to the courts to act as the estate administrator and guardian of the children. This process can be costly and lengthy. During this process, the assets of the deceased are frozen. Also, the pre-set rules that the government follows to distribute the estate assets does not maximize tax-efficiency.
Not naming beneficiaries on your accounts
If you have a pension plan, RRSP, TFSA, RRIF or other investment accounts and a beneficiary has not been designated, the assets would be included in the deceased’s tax return and be part of the deceased’s estate. A valid will would then determine how the assets would be distributed. If instead, the spouse is designated as the beneficiary of a registered plan, the deceased’s registered plan assets can be transferred directly to the surviving spouse’s registered plan, thereby avoiding the inclusion of the registered plan assets in the deceased’s tax return. This can save significant taxes and avoid having to include the registered plan assets in probate.
Having too many accounts
Over the years, most people change jobs and change residences. Often, bank accounts and investment accounts are opened at financial institutions based on convenience of location, being close to home or work. After several moves, an individual may have many different institutions holding various accounts. These accounts can be forgotten, especially if they were only used once or twice for a last-minute RRSP contribution for example. In many cases, if the individual dies, their spouse has no way of knowing where all of these accounts are or that they even exist. The only indication may be that they receive an annual statement in the mail. But, if the financial institution does not have a current address on file for the account holder, this may not even happen. Now that most financial institutions are switching to electronic statements, the possibility is even greater that the spouse may have no way of learning of old accounts that are held in the deceased’s name.
One spouse handles all the financial matters
In a marriage, usually each spouse has their own main responsibilities in the marriage. Therefore, one spouse will typically deal with the finances because they are more skilled or more interested in this area, and the other spouse will take on other responsibilities. However, it is important that both spouses are aware of what is happening with their finances. The less involved spouse should still go to some of the meetings with the financial advisor to stay up-to-date. They should also have knowledge of where all their assets are and what professionals are involved with them. This will make it much easier to deal with the finances in the event a spouse passes away.
Jennifer Black is Co-Author of the Book: Managing Alone. For more information, or to order a copy of the book, please visit: http://managingalone.com.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Justwealth, or its employees. The content of the article is provided solely for information purposes only and should not be construed as advice of any kind.