Will Planning – Avoid these Issues and Problems

May 2021

In my many years as a professional accountant and financial planner, I have encountered a variety of issues with Wills.  Some of these are just clerical errors, such as calculating amounts incorrectly (e.g., giving away 105% of your residual assets).  Others are forgetting to change the Will to include new children, a new spouse, etc.  However, this article deals with other less obvious problems that careful review and checking of your Will may not identify.  Please contact your legal counsel, professional financial planner and/or tax advisor for additional information.

1. If your executor lives outside of Canada, you have likely set your estate up to a number of complex international tax problems and I suggest you get immediate tax advice.
2. If you have several executors, you may have introduced extra complexities in settling your estate. Do all of your executors need to act unanimously to reach decisions, which is likely the case unless you state otherwise?  If so, what happens if they disagree?  If you have one executor in another province, obtaining signatures on documents may be challenging. Most parents who appointed all of your children as equal executors were thinking they were doing the right thing.  They would never have done so if they could foresee the problems created.  (Think about those derelict houses in the country that you see on your Sunday drive.  They are often the result of a lack of agreement on: Who gets the house? Should we sell the house? Who pays, or can/cannot afford to pay, the maintenance costs?)
3. Have you provided for alternative executors in case those you have chosen cannot or will not act?
4. Have you considered or discussed the appropriateness of executor fees for your specific situation? If one child out of several are saddled with your executor duties, is it fair to expect him or her to do it for free?  As a side note, be aware that bequests are tax-free to the recipient whereas executor’s fees are taxable.  I have seen Wills drafted by lawyers that state, “In lieu of payment of executor fees, I bequeath $10,000 to my son, Sam.”  Think about that – would you expect the Canada Revenue Agency (who will receive a copy of your Will) to permit a tax-free bequest to your chosen executor if it is clearly being paid as remuneration for executive duties?
5. Have you bequeathed your family home and related property to a beneficiary? While you may think this is generous, can they afford to maintain the home?  It may be better to sell the home and bequeath them the proceeds.  I have seen a child inherit property from their parents, and refuse to sell it for nostalgic reasons or because “Mom and Dad would not want that.”  Meanwhile, the house is falling down and the child is living in poverty.
6. Have you bequeathed your cottage to more than one the child, or to a trust for a number of children? If so, what if there is a dispute among the children regarding ongoing issues? Who will decide who gets to use the cottage and when? What if one child cannot afford to contribute their fair share towards ongoing maintenance?  I suggest you have a family meeting and decide now on the future of the cottage (and your home and other property).  Make decisions and take appropriate steps now to avoid future conflicts.
7. For all of your properties that will be subject to tax on your sale, are documents available showing their original cost, and any cost of additions during your ownership? Will your executive be able to find them?  Your executor will need to know the cost of your property in order to calculate the income taxes upon your death.  (To the extent that assets are bequeathed to your spouse or common-law partner, taxes can be deferred until the second death.  However, the costs will eventually need to be known.)
8. Do you have property that will be transferred to your beneficiaries without being sold, such as your cottage, real estate in excess of one half hectare surrounding your family home, and investment portfolios, etc.? If so, have you estimated the income taxes that will be incurred on your death? Will there be enough cash available to pay those taxes?  If not, you should consider what property will need to be sold or how much life insurance you need to buy.
9. Have you provided sufficient documentation in your Will to identify any assets that might require access by computer, such as online bank accounts, frequent-flyer or store loyalty accounts, ownership of websites and social media accounts, Bitcoin and other such currency ownership, etc.?
10. Have you provided funds in trust to your grandchildren to help them with education, etc.? Are you aware that trusts will require special trust income tax returns to be filed, bank accounts to be set up at financial institutions, and expenses to be incurred that may eliminate any income earned from the trusts?  To provide flexibility, if you wish to use trusts, consider including a clause in your Will allowing the executor to choose to give the money directly to the parents instead of placing it in trust for the children.  Instead of using a trust and specific instructions, maybe express your wishes for use of the money in your Will.  Such wishes will not be binding but may avoid unintended costs and consequences.
11. Do you own a business? Have you set out your business succession plan in your Will? If you own a business, plan now and be specific on who will inherit the business, after considering the ability of your children to run your company, their interest in doing so and their ability to cooperate with each other.
12. For any assets or cash that you are bequeathing to your married children, what happens to their inheritance if they get a divorce? This will vary from province to province based on provincial family law.  However,  if this is a concern, the bequest should be made solely to your child, and not jointly to your child and their partner.  Instead of gifting money as a house downpayment or for other purposes, using an interest-free loan may be a better option.  You may wish  should seek legal counsel, financial planning advice or advice from a Chartered Financial Divorce Specialist on how to protect those assets from a child’s possible future divorce settlement.
13. Is this a second marriage for you or your partner, with children from a prior relationship? If you die first and leave everything to your spouse in your Will, which is often done for income tax purposes, how do you know if your own children will receive any of your assets in the future?  You may have agreed with your spouse that they will provide for your children in their Will.  However, what if your current spouse changes his or her Will?  What if your current spouse remarries after your death and the Will is changed again?  Perhaps it is better to be some assets directly to your children in your own Will, and incur any related tax costs at that time?  You should discuss all of your options with your professional advisors.
14. If you have an investment portfolio, and are making charitable donations at your death, have you permitted the executor to make “in-kind” donations. Sale of investments may trigger capital gains, which will be taxed, but transferring shares directly to charity will allow the capital gains tax to be avoided on those specific shares.
15. Have you been clear on who receives your bequests if your first choice of beneficiary has predeceased you? Will they go to the family of those beneficiaries, or to other individuals?
16. If you have placed specific people as beneficiaries on your RRSP and RRIF accounts other than your spouse or common law partner, you should note that your estate will pay the taxes on the full value of those account balances. The beneficiaries will receive the full amount of the account and the taxes will come out of your other assets.  If you want the beneficiaries to pay their fair share of taxes on those accounts, you need to word your will appropriately.  A similar problem exists for transferring any property that may be subject to capital gains, such as our cottage or other real estate.  Use of life insurance to pay the taxes from your estate is one consideration.
17. If you have an account in joint name with one of your children (or anyone else), do you want that account to be transferred to that child alone at your death? If not, you should state in your Will that the account was for convenience purposes and was not intended as a gift of beneficial ownership to that child when you made it joint. And, if that is the case, remember that you must report all income and gains from that property on your own tax return during your lifetime.
18. Have you used joint ownership or a life interest to avoid probate fees and simplify your estate? You may have created some problems.  Read my articles about these topics and consider getting further legal and financial advice.  If a joint account is being used for convenience, e.g., for banking, use a Power of Attorney instead.
19. While looking at your Will, if you have life insurance, get independent advice (i.e., in addition to your insurance sales representative) before cancelling it, or before renewing a term policy at very high premiums. In addition, ensure you have the right beneficiary chosen – e.g., should it be your estate, an individual or your corporation (if you own one)? In addition, now is a good time to ensure you have the correct beneficiaries assigned to your RRSP, RRIF, employer pension plan, and segregated fund investments, as well as life insurance policies.  For your TFSA and tax reasons, a spouse should likely be your “successor holder”, not a beneficiary, with other individuals being beneficiaries.
20. Finally, along with your Will, you need a Power of Attorney, and should consider a Health Care Directive (“Living Will”), and funeral planning (whether prepaid or not).

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum