Making your will: the keystone of estate planning
One of the most ignored elements of personal financial planning is also the most basic: a will. A remarkably high number of Canadians don’t have a will, and in many ways that’s not surprising. Wills are associated with the end of life, which is never a happy topic for any family.
On top of that, wills involve legal issues that are rarely as rewarding as the more interesting aspects of financial planning, such as investing and asset allocation. And finally, wills often require individuals to make difficult family decisions that can awaken complex emotions surrounding our most important personal relationships.
Whatever challenges are involved in the process, however, failing to make a will is a serious mistake. Many people assume that if they die intestate (i.e., without a recognized will) then their estate will automatically be awarded to their spouse or common law partner. This is not the case. Instead, the estate will be distributed according to the laws of the deceased’s province, and may result in an outcome entirely unforeseen and never intended. Furthermore, dying without a will places an extra emotional and legal burden on loved ones at a time when they are least equipped to shoulder it.
It’s never too early…
If you haven’t set up your will already, now is the time to do so. And no doubt you have a number of questions. How do I make a will? How much does a will cost? Should I use a lawyer, or is a will kit sufficient?
The good news about wills is that, for the most part, they can be done quickly and without much effort. Wills tend to be fairly similar for the majority of people, and if you don’t have an estate or family situation that is complicated, then you won’t need to spend a lot of time drawing one up. In addition, your will can sometimes serve you for many decades without requiring any changes. Having said that, however, you should regularly review your will to make sure that it reflects your current circumstances and life situation. If you get married or divorced, for example, or if you move to another province, you’ll need to update your will accordingly.
A will is not just about property
Many people mistakenly assume that a will is just about the division of one’s property. It isn’t, and in fact, the most important part of a will concerns people: specifically, your executor and your children.
Executor: The first thing to consider when drawing up a will is designating your executor. This is the person who is legally responsible for enacting your will and making sure your wishes are carried out. Think carefully about who is best for this role—and be guided by your head, not your heart.
In most cases, a third-party executor is likely the best solution. Selecting someone who knows your family but is apart from it—such as a family friend or your lawyer— can be a good way to remove the burden from your loved ones and avoid unwanted emotional trauma.
Guardian for children: In families with children who are not yet of legal age, the most important part of a will is naming their guardians. Where young children are left without their parents, a family court judge will appoint a guardian, and the factor that weighs heavier than any other, is the will. If the parents indicate who they would like to be the guardian in their will, and that person is willing and capable of doing so, the judge will almost always agree to that wish.
But property does matter…
At the heart of most people’s wills is the property they leave behind. Your will allows you to distribute your assets as you see fit, but to do this you first have to list them. This is because your executor will need to know about all your assets, from vacation properties and investments to personal property such as jewellery and cars.
Note that the list of your assets doesn’t form part of the will itself – it is only there as a guide to the executor. You should only list a particular item of property in the will if you are designating a specific beneficiary to receive it.
Your liabilities also form part of your estate, because whatever you owe must be paid from the estate itself. For most people, the biggest liability they leave after death is their taxes.
When you pass away, all your capital assets are deemed to have been disposed on the day before your death. This will trigger any capital gains that accumulated on these assets, and the government will come calling.
Mortgages and loans also form part of your estate and are a component of its value. Once you have accounted for your debts, you’ll have a general idea of what your net worth will look like when you pass away, and you can then divide everything among your heirs in your will.
You may also want to set aside some cash to provide for funeral expenses and administrative costs, as this will make life easier for your loved ones. This is also the time to specify what you would like to leave to charities and favourite causes as part of your legacy.
How to draw up a will
Although a will is a legal document, it does not have to be drawn up by a lawyer, nor does it have to be notarized. Many people use a do-it-yourself will kit, which can be quick and convenient. In recent years, online will software programs have also become a popular alternative. These are similar to online tax preparation software, and are generally of a higher quality than paper-based kits because they can guide you through the process with pertinent questions, as well as check for errors.
Nonetheless, many financial planning professionals recommend a lawyer over any other option. Although a lawyer will charge more than a will kit, the fees are generally not particularly high for such an important document. They will also be providing you with expert advice and peace of mind, and your family will benefit from a lawyer’s involvement at a time when they will most need the steady and reassuring hand of a professional.
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