Are you an estate trustee, wondering if you need professional tax help? You may say, “Why bother? After all, I prepare my own personal tax returns.” The risks are too ...
1. Exercise Your Will Power
by Ed Olkovich, Originally published in DivorceMag
You've worked hard all your life to provide the very best for your family, friends and community. How do you ensure this will continue? The answer is quite simple. Through a legal document -- your will.
Some things to consider:
The time and cost of a lawyer-prepared will is small compared with its benefits. A will avoids uncertainty, which can lead to arguments among beneficiaries, delaying settlement of your estate and increasing costs. You'll also have peace of mind, knowing your affairs are in order and your beneficiaries will not have to deal with the courts to settle your affairs while they are grieving.
Put Family First
First It's possible that you and your partner could die together. Only by appointing a guardian in a will can you specify who will care for your children.
Your Good Intentions
If you do not make a will your good intentions to provide for your friends, charities, religious institutions or relatives mean nothing. The law dictates exactly how your assets are divided among your family. Wills ensure your legally binding wishes are carried out.
Canada no longer has estate or inheritance taxes, but death triggers federal income taxes. A proper estate plan can minimize taxes now and for your beneficiaries. Why not plan to pay less taxes?
Support a Charity
A bequest to your favorite charity continues your support and can reduce taxes.
Who's In Charge?
Your estate trustee or executor is the person named in your will to distribute your estate. An executor can be a family member, a friend, lawyer or trust company, and there can be more than one executor. Professional trustees can manage trust funds for the financial security of spouses who lack financial expertise or a dependent child.
Explaining legal concepts and preparing wills to meet your estate needs are what lawyers do. Many people think that they'll save money by preparing their own will however, if imprecise language is used, it may end up costing more money, in the long run, because of interpretation problems.
Making a will gives you assurance that your affairs are in order. Preparation of an estate plan includes powers of attorney to deal with incapacity and personal care issues. Consider funeral arrangements and organ donations too.
Revisit Your Will
Even though you have a will, marriage, separation, divorce, or the birth of a child all mean your will must be revised. Unless your will is current, it cannot reflect your needs. Changes in your assets, beneficiaries, estate trustees, and the law require regular reviews of your will and estate plan.
Don't Lose It Remember to keep a copy of your will at home and the original in a safe place. Make sure someone knows where it is. What good is a well-written will if no one ever finds it?
2. Make Your Will Bulletproof
By Edward Olkovich, Originally published by CARP Magazine at 50Plus.ca
Can you make your will bulletproof? You can avoid some dangerous traps when you make a will by learning some of the potential pitfalls and the reasons why you must keep your will up to date. You need to know there is a difference between properly and badly prepared wills and why you should invest in professional advice.
Milestones in your life, such as the purchase of a home, marriage, having a child or death of a loved one, triggers a need to review, revise or make your will. But don't expect you can make one yourself because your beneficiaries get along or you are not rich. You could end up like Alice who thought she had a simple estate and that her relatives could settle things among themselves.
Alice wrote out her own will that said her money in the bank went to her nieces and everything else went to her nephews. What happened when Alice passed away? The nieces thought that the money included bank GICs and bank mutual funds. The nephews said the money was only what was in the savings account. Everyone hired a lawyer and went to court to ask a judge to decide what Alice intended by using the word "money."
The judge said legally the bank GICs and mutual funds were not money. Money was only what was in the bank account. The courts require that amateur and lawyer- prepared wills satisfy all the same legal formalities. So making your own will makes you responsible for its contents -- and ignorance of the law is no excuse. The kicker for Alice was that since she made the mistake, her estate had to pay everyone's legal bills.
So would Alice or you be safer to use a will kit? The danger with will kits is that they claim to be "legally approved." Well, that's hardly accurate. Only lawyers can express a legal opinion on a will after it is signed. Will kits or computer programs are not tamper-proof. They can't prevent you from making a mistake filling out forms. What you end up with may never make a will legal. You could end up with a do- it- yourself disaster.
Should you use a will kit?
Wills set out who gets your stuff, who is in charge and who will be your backups in case your first choices are not available. The law does not require you to use a lawyer or notary to make a legal will. Sounds simple enough, but is it? Don't kid yourself. Making a will involves the intersection of tax, family, estate, property and trust laws that most people do not consider.
Do-it-yourself (DIY) kits all contain disclaimers so you can't hold the sellers responsible. Most people need advice, not only information, to make the right decisions. I'm a lawyer and make money from preparing wills, but I've seen so many disasters that I don't believe you save money by doing it yourself.
When self help is no help
DIY wills are a courtroom lawyer's dream because the problems they create provide a steady stream of legal work. Get experienced legal advice if you:
- need tax advice.
- have minor children.
- are in a second marriage.
- need advice about marriage contracts.
- have obligations to common-law partners.
- need a will with trusts to protect beneficiaries.
- live with assisted care or are recently ill or hospitalized.
- have substantial investments, a business or second home.
Are computer programs better?
Don wanted his favourite niece Sarah to repair and use his summer home before she would inherit it. He asked his neighbour, a computer guy, to help him with a will software program. Don read his will on the computer but did not check the printed version that left out the legal description for the property. Don told Sarah that he amended his will to leave her the summer property.
Acting on her uncle's verbal promise, Sarah spent her money renovating the property. Unfortunately, when her uncle died, Sarah discovered how shaky that promise was. Don's will did not properly describe the summer property she was to inherit. She had to hire a lawyer to sue Don's estate because he never had his will checked by a lawyer.
Many of my clients admit they buy the will packages out of curiosity.
This is a sign that they are trying to do the right thing but not that they are going in the right direction. We all know where good intentions will take you.
Most will preparation packages don't give you enough background information to understand your legal rights and obligations.
If you have minor children, spendthrift or disabled beneficiaries you may need someone to manage the inheritance for your beneficiaries. Your will can control the funds for loved ones, but this is too complex for most will packages to explain.
Bulletproof your will when you make or revise it and follow these steps.
Review what you have
I'm talking about more than listing your net worth here. You need to know what kind of assets you have and what is controlled by your will or passes outside of it, such as your RRSPs and RRIFs. For instance, if you have changed jobs or banks, your designated beneficiaries with your employer or the bank holding your RRSPs may not be current.
Your life insurance policies should normally be designated to go directly to a named beneficiary. This will help reduce probate costs and pass assets outside of your will unless you designate them to go to your estate.
Assets owned jointly with your spouse, such as your home, have benefits. The last surviving spouse will usually inherit such assets without probate problems. That benefit is not always available when you own assets with your children or third parties.
You risk losing control of the asset, and a child's creditors or divorcing spouse can make claims to your property. As an alternative, you may want to pass your assets through your will. This gives you control of your property and may be the only reason children call you each Sunday.
Estimate your final tax bill
We all pay too much in taxes. Your will can allow you to set up trusts to defer and minimize income and probate taxes. If you have a business, substantial investments or a second home, you may not want your loved ones being forced to sell them. Your financial adviser can estimate your tax bill on death from these particular assets. Then your will can ensure you have money to pay the bill so your loved ones can keep that vacation property.
Cover your legal obligations
Should you not be able to do whatever you want with your money? Well, you would be surprised how many people have legal rights to share in your estate. The list includes your spouse, financial dependants and those you made promises to, including common-law partners. Any one of these individuals can be a creditor of your estate. If you ignore their rights, they could sue your estate or challenge your will. If that happens your estate can be frozen until the lawsuit is finished. Can you think of anything worse than paying for a three-year legal battle after you're gone?
Your will is where you name guardians for your minor children or set up trust accounts to manage their inheritance until they are 21 or older. Don't forget to deal with contingencies such as drafting a clause to deal with a situation in which the entire family perishes in a single accident.
Review your will each time your assets, beneficiaries or relationships change. Remember, a new marriage automatically revokes your will.
Wills reflect your overall estate plan
Don't change your will without knowing how it affects your overall estate plan or you could create a mess. Norma wanted her favourite nephew Bill to inherit her house when she died. She wanted the remainder of her estate divided into two shares – one for charity, the other for relatives abroad.
When Norma made her will, she forgot she had already designated her life insurance policy (her only other major asset) to her relatives outside of her will.
When Norma died, her will only dealt with the house but not the life insurance. Bill, as her executor, could not use the life insurance proceeds to pay for her funeral, income taxes or probate costs totalling $50,000. Norma's will was inconsistent with her overall estate plan covering all her assets. Bill was given her house in the will but had to mortgage it to pay the estate expenses.
Do your homework. Read books on the basic estate planning principles before you pay a sudden unexpected visit to a hospital.
In emotionally charged situations, you are at your weakest and lowest point susceptible to making mistakes. In such cases, the law presumes you can be taken advantage of, and anyone who has a hand in helping you make your will must be aware of these dangers.
Wills are subject to court review and approval and can be contested so do not wait for an ambulance to arrive to revise your will.
Make sure you obtain information that is up to date and from responsible, reliable sources. Be careful searching the web for Canadian legal advice. Cyberspace is unsupervised and filled with unregulated individuals who pose as lawyers misrepresenting their qualifications.
How to find lawyers to help
Finding lawyers to help is another scary problem. Usually, you can get a list of names from financial planners, bank representatives or professionals. Go to the lawyers' websites or enter their name in a Google search.
Check if the lawyer writes, speaks or teaches in this field. Get background information to conduct a telephone interview with the lawyer. Then assess fee information, experience and how suitable the lawyer is for your needs. In some provinces like Ontario lawyers are certified as specialists in the estates and trusts field.
When you spread the cost of a proper lawyer-prepared will over five to 10 years, it works out to pennies a day. Professionally prepared wills do not cost money; they save money. Consider them an investment to protect your family, just like the cost of insurance or a burglar alarm system.
Making a will is a legal document that takes more than your common sense. If the law were only common sense, why would we bother with lawyers and a court system? Professional help can avoid having your wealth wasted in a family war over your money after you're gone.
Wills are the cornerstone of your estate plan, and you should expect to pay hundreds of dollars for a will. If you do not pay for a properly executed will now, you risk having loved ones paying thousands of dollars a day for lawyers to go to court. Use a lawyer to review, revise and make your will so you don't put your wealth and loved ones in danger.
When should I update my will?
- Anyone mentioned in your will changes their name.
- Executors become unsuitable due to age or illness.
- Beneficiaries die or become incapacitated.
- You sell any specifically gifted property.
- You divorce, separate or enter common (law) relationships.
- You move to another jurisdiction.
- You purchase or inherit real estate in another jurisdiction.
- Your marriage automatically revokes any prior will.
- You have children, new step-children or grandchildren.
- You need a new guardian for minor children.
3. Choosing Your Executor
Originally published by CARP Magazine at 50Plus.ca
Sooner or later, you will need to name your own executor or act as one for your relatives. Your family's wealth or your own inheritance depends on making the right choices. The executor is the estate's legal representative. This person pays bills, taxes and divides up the assets.
Bad executors can steal your inheritance or your family's wealth. Here's a story about the problem executors can create. As executor, Jack was to sell his father's Ottawa home and share the estate with his sister, Sandra, in Vancouver. Fifteen months after his father's death, the son was still living in dad's house. Sandra was uneasy because of Jack's substance abuse and his stalling. She scolded him, "You should be paying rent or house expenses until the house sells."
Jack refused and took another year before he filed his father's tax returns. Finally, he gave Sandra half of the house sale proceeds. When she asked for an accounting and her share of other assets, Jack refused to return her calls. Sandra hired her own lawyer who told her to take her brother to court, but she was too bitter. "I wish Dad made me his executor. I would have done the right thing."
Name the right executor
1. Family comes first
Unless you have good reason not to choose family members, they are your best bet. Usually they are beneficiaries and are therefore motivated to work quickly without a fee. By law, executors are entitled to claim compensation for their time and trouble. They can receive upwards of five per cent of your estate, depending on local custom.
What if you name all your children as executors and a stalemate arises? Use a tiebreaker clause so decisions do not have to be unanimous. Otherwise, executors may be forced to hire separate lawyers and end up in court. If you anticipate family feuds, consider using non-family executors.
2. Assess your particular needs
Do you operate a business, have substantial investments or rental properties? If you answered yes, you need executors with particular skills. Your brother or sister may not be able to run a dry- cleaning business until a buyer is found. If your estate has specific needs, these will affect your choice.
3. Consider your long- and short-term goals
Most estate work is wrapped up within the year usually allowed for executor's work. In some cases, this is only the beginning of an executor's role. You may need to manage estate money for 10 years until the twins are 18. If your child is disabled, you may need to protect his inheritance on a long-term basis. In such cases, consider multiple executors or hire a trust company.
4. Avoid conflicts of interest
Do not try to patch up family riffs by forcing relatives to work together as executors. It seldom solves anything, and battles may begin at the funeral home. Are you better served with an outsider such as your stockbroker or business partner? Not if they have a financial interest or connection to your assets. They could make claims against your estate and then be in conflict. In such cases, they may not be able to act as executor.
5. Specify executors' rights
Executors must put an estate's interests ahead of their own as the law considers them in a position of trust. What does that mean if your nephew, Thomas, wants to buy your summer home from your estate? If he is your executor, he can fall into a conflict when trying to buy estate assets, such as your cottage. Unless you specifically give him this right in your will, he may need court approval. He may be forced to resign if conflicts arise.
6. Name a back-up executor
What happens if your executor refuses or is not able to act due to age or illness? Executors can renounce before they act or resign later if it is too much to handle. They can renounce by signing a court form provided no work has begun on the estate. Once they start handling estate assets, however, they will need the beneficiaries' consent. The executors could be responsible for legal costs required for court approval to permit them to resign.
You can save money by adding a back-up executor when you first prepare your will. Many people who make homemade wills often fail to name one.
7. Ask for their consent in advance
Executors do not need to sign anything to confirm they will handle the job. They need not be beneficiaries or witnesses to the will either. Before you invest in having a lawyer prepare your will, get your executors' verbal consent. Otherwise, you have to pay later to change your will and replace them. Professional executors such as trust companies will normally consent in writing to confirm their fee arrangement.
8. Review your choices regularly
If your sister Sarah has moved to Calgary, can she handle your rental properties in Montreal? Will she need to hire local agents? Do you only speak to your husband's family when they ask for money? Perhaps you should reconsider them as a choice. When Mary named her father as executor, he was 67 and active until his stroke. She should replace him as a named executor by amending her will with a codicil.
9. Professionals are available to help
Your business plan must include having experienced executors to sell it as a desirable, going concern. Using a professional executor can be beneficial when family or partners have a conflict or are unqualified. Consider a professional executor such as a trust company, lawyer or accountant for short-term purposes to keep the business viable until it is sold.
The risks involved in some estates may make individual executors nervous especially if business, environmental and liability issues exist. If no one else is available, use a trust company or professional adviser. Professionals must have the time, inclination and not delegate work to others. As an alternative, it may be cheaper to hire experts on a fee- forservice basis.
10. Name only those you trust
Executors don't usually come with experience. They must, however, be trustworthy and able to balance a cheque book. Should you consider your niece Sherri because she is graduating with an MBA? She may have more skills than you need. What's more important is if she is reliable and lives close enough to help.
11. It's okay to multi-task
You can give one person more than one role in your estate planning. My wife is my estate trustee and beneficiary. The person you name as your proxy, agent or attorney for property has the same qualities you want in an executor. Your lawyer can explain how you can put in a system of checks and balances to minimize possible abuse by someone expected to protect your estate.
12. Protect your executor from lawsuits
What if the market crashes, an accident destroys a valuable asset or a business loses money? Executors can be blamed or sued for the losses. Make sure your will covers these contingencies for executors who act reasonably. An experienced estate lawyer can include clauses in your will to protect executors. Otherwise, they may renounce their position and refuse to act.
Leave an estate guidebook
Your executor needs information on where to find your will, any special instructions and your estate inventory. You cannot imagine how much time can be lost looking for financial information or worrying about funeral arrangements. Putting your affairs in order gives executors a road map to move ahead.
Executor's To-Do List
If executors breach their duties or fail to protect the estate, they can be sued. If you are acting as an executor, check with a lawyer to ensure you are properly authorized under the will to avoid any liability.
An executor's responsibilities include:
- Find original will and any codicils amending it.
- Confirm with your lawyer that the will is valid.
- Secure valuables, appraise and preserve the business (if any) and protect the house by changing the locks.
- Arrange funeral and notify next of kin.
- Protect all property and notify the insurance company to insure theft and fire coverage.
- Hire a lawyer to obtain probate if necessary.
- Prepare inventory and appraisals of deceased's assets.
- Identify debts and cancel credit if appropriate.
- Get investment, legal, business or tax advice.
- Pay all bills, taxes and creditors.
- Sell or distribute assets to beneficiaries.
- Have beneficiaries approve and release you from any claims. Be sure to get their agreement in writing.
New rules to fight fraud can force your family into court and contested guardianship proceedings.
by Ed Olkovich, Certified Specialist in Estates & Trusts Law and Toronto Estate Lawyer since 1978
Can you imagine this happening to you?
A man is using a photocopier to scan your signature into a computer. In a few seconds, he generates an original document. He signs it and hands it to his accomplice. She also signs to witness your signature. This forged document is a power of attorney for property. It contains no restrictions or conditions. It is a license to steal.
You probably think it can’t happen to you, but Power of Attorney (POA) fraud is common. In fact, I no longer recommend people rely on do-it-yourself power of attorney forms or kits. I‘ll explain the risk, and why you need to invest in a professionally prepared POA.
What is the Risk?
If you prepared the POA by yourself, it may not be considered valid when you need it. The onus is now on lawyers to give legal opinions on a POA’s validity.
When a power of attorney is used to sell or mortgage real estate, lawyers have new responsibilities. Financial institutions also will insist on legal departments reviewing all POAs. If your POA does not meet the new rules for approval, you could be without one.
Guardianship under the Substitute Decisions Act, 1992
Families who do not have valid POAs can end up in costly court proceedings. Your family may be forced to apply to be your legal guardian for property. Typical cases can cost tens of thousands of dollars.
Don’t think you are safe because you have a spouse. Spouses do not automatically have the right to sign for you without a POA. Your spouse may need to be appointed as a guardian for property under the Substitute Decisions Act, 1992.
If you are a single, elderly person, your children may be appointed as your guardians. In Ontario, this is done under the Substitute Decisions Act, 1992.
Under court rules, your children may be notified and entitled to appear in court. They can hire lawyers to contest proceedings. Your wealth can be wasted in contested guardianship proceedings that cost over $100,000.
Problems with Invalid Powers of Attorney
Your attorney may try to sell your home with a homemade POA. You need the sale proceeds to pay for your nursing home costs.
But what if:
- the lawyer cannot find the witness to the POA,
- you are incapable of making a new POA, or
- the POA was not properly prepared?
You can find all your relatives going to court. In court, there could be a dispute over who is appointed as your guardian. Only a guardian for property can handle your financial affairs. Your sister – who you haven’t spoken to in years – could be put in charge of your money.
What’s the Inexpensive Solution?
If you own real estate in Ontario, you better know the risks involved in selling property with a POA. Lawyers must determine the validity of the POA.
They must ask questions including:
- How recently was the POA prepared?
- Was it prepared by a law firm that can answer my concerns?
- Can a lawyer confirm personally meeting the donor who was capable when the POA was signed?
- Are there any restrictions or conditions on the POA?
- Is the original POA available for inspection?
- Does the signature on the POA match other signatures available for comparison?
- What is the relationship between the attorney and the donor - the person granting the POA?
- Who are the witnesses? How can they be contacted and where was the document signed?
- Is the POA being used to mortgage or sell property?
- Was there a private sale and is any mortgage lender aware a POA is used?
- Who benefits from the transaction?
- Is the donor available to confirm the POA was not revoked?
This is not an exhaustive list of questions.
The Bottom Line
If you own real estate, it’s too risky to use a self-prepared POA.
Invest in a professionally prepared POA.
Do you need to make or to review your existing powers of attorney? Call Ed Olkovich, C.S., to book your appointment today – 416 769 9800.
Copyright (c) 2009 Edward Olkovich
Contact my law firm to arrange for a consultation or appointment to review your needs.