In a perfect world, your final wishes would be carried out just as you wish. In Canada, you generally have testamentary freedom, which means you are allowed to distribute your estate in the manner you choose, as stated by your Will. However, there are some limits on this depending on various factors including common law, marital status, blended families, minors, adult children and dependants.
Most of us don’t live in a perfect world. Our lives are complicated. Family trees sprout more branches as couples divorce and remarry. In addition, in this age of consumerism, we continue to accumulate more stuff over the course of our lives. While property and investments are some of the obvious examples, you could also amass things like collectibles (e.g. sports cards) and original paintings.
Reality is that you cannot please everyone. Dissatisfied heirs may look for any opportunity to claim what they feel is rightfully theirs. This could be a spouse who doesn’t receive 100% of the estate, or beneficiaries who end up receiving a smaller share than they expected. Within the estate context, they are generally called Dependants Claims.
So, how can you protect your heirs? One way is being more aware and vigilant in how you distribute your estate. To help you get started, here are a few ways you can bulletproof your Will and safeguard your wishes and intentions for your beneficiaries.
Can you make your Will bulletproof?
One of the sure-fire ways to avoid disagreements over your estate later on, is to stay two steps ahead. This means a thorough understanding of some of the pitfalls that may occur. Here are eight tips to help you mitigate the chances of your Will being attacked.
Tip #1: Know the law
Each province may have its own rules about obligation. Seek out legal advice about these laws. In particular, you will want to find out if the law mandates you provide for specific family members. These may include your spouse, minor children and even adult children with a disability. If you have assets outside of Canada, there could be additional ramifications concerning who you need to include in your Will. Have your financial professional prepare a financial plan that can project the total amount of funds required to provide for your family members during their lifetime.
Tip #2: Minimize future conflict
If you are starting a new romantic relationship, consider a cohabitation agreement or prenup if you want to give your new spouse less than the provincial minimum. If you have children from a previous marriage, you would want to leave a certain percentage to your separated spouse to ensure that they are provided for. When dealing with blended families, there is an added layer of complexity as the situation may include children from both sides of the marriage. However, it is possible to figure out a way to minimize the chances of disagreement later on. Hiring an estate lawyer to set up a proper structured plan is a good idea.
Tip #3: Draft when healthy to safeguard future wealth
The best time to draft up your Will is when you are healthy and in the right state of mind. “Unfortunately, health events can occur quickly as we age so it is best to have complex wishes documented without delay,” says Melanie McDonald, Vice President and Regional Director, BMO Trust Company. “Life can get busy, but updating your estate planning documents is important for you and your family and should move up on your to-do list this year.” If you have had significant health issues such as the onset of an ailment that affects your capacity (for example, Alzheimer’s or a stroke), talk to your doctor or a mental capacity specialist about providing you with a written opinion stating that on the date that you signed your Will, you had the mental capacity to create a valid Will.
Tip #4: Keep it confidential
One of the ways to ensure that your Will is legally valid is to sign it in a lawyer’s office without your family in the room so that no one can say later that you were pressured to give a certain family member a particular gift. The last thing you want is for it to be contested later on due to undue influence. Every province has its own rules about how to properly sign a typed Will, and how many witnesses should be present in the room.
Tip #5: Play a fair game
Life insurance can be an option where you want to equalize gifts among your children, or where you have assets that you want to go to one child and you don’t have enough cash/investments to apportion equitably. Let’s say for example, you have a farm worth $500K and investments of $250K, and you want to distribute your estate amongst two of your kids. If you give one child the farm, and the other the investments, there would be an obvious imbalance. One way to get around this is to buy a life insurance policy for $250K or more to also cover estate debts and expenses. This way, each child receives the same amount.
Tip #6: Make your voice heard
“If you don’t explain the reasons behind your estate planning decisions, then the only point of view that may come out is from the beneficiary who is not happy with your decisions,” says Melanie McDonald. So, what do you do if you intend to distribute your assets in an unequal manner to different beneficiaries? Perhaps you are thinking of intentionally leaving someone out of the Will, such as an estranged child. “It may be impossible to make everyone happy so explaining your thought process and reasons can help beneficiaries understand and move on.”
One way to address this is to write a side letter (or affidavit if you foresee litigation) explaining your side of the story. You may very well have a valid reason for your decision. Stating your wishes eliminates the possibility for others to speak on your behalf during the estate phase. You could also announce your wishes to your loved ones while you are alive so that everyone is clear that the decision is solely yours.
Tip #7: Choose the right executor
Creating a Will is a very personal and private matter, and it’s your decision if you want to keep it a secret from your loved ones. It may; however, also lead to unintended duress after your death. Appointing an executor is a must if you want to ensure that your wishes are followed. It goes without saying that this should be someone who is honest and you can trust. Keep in mind that if this person is an executor and a beneficiary there may be a conflict of interest, so you may want to consider a professional executor from a government licensed Trust Company. These days, it is also recommended that you appoint an executor for your digital assets. “Proper time should be spent to pick the right executor and alternate executor,” says McDonald. “Also if you pick a team of executors you need to decide if they will be able to work productively together.”
Tip #8: Add a no-contest clause
A lawyer can help you figure out if you should add a legally binding clause to your Will which states that if a beneficiary challenges the Will to get more, then they forfeit the gift in the Will and another beneficiary will receive that asset. This doesn’t stop someone from challenging a Will, but it may be a deterrent. A less harsh version could be to add a clause to state that if someone is unsuccessful in challenging the Will then that person pays the legal fees of all parties; paid from their share of the estate.
Plan ahead
Review your Will every few years to ensure it addresses all your current family members and assets. Few things are more disruptive than estate disputes. Disagreements can ruin family dynamics – heirs may not talk to each other, fracturing relationships for future generations, and funds which are needed by spouses and family could be tied up in litigation.
Any time there is a big life change in your life, think about how it may impact your Will. As you continue to collect memorabilia, expensive art and appreciating assets, you may need to make adjustments. You may not know it now, but that signed sports jersey worn by your favourite player in the championships could be the envy of many.
Protecting your beneficiaries requires careful planning. Spending the time and effort to get good advice while thoughtfully updating your estate plan and supporting documents so that your wishes are respected and your voice is heard and you create a positive legacy.
For more information, please speak with your BMO financial professional.
BMO Private Wealth provides this publication for informational purposes only and it is not and should not be construed as professional advice to any individual. The information contained in this publication is based on material believed to be reliable at the time of publication, but BMO Private Wealth cannot guarantee the information is accurate or complete. Individuals should contact their BMO representative for professional advice regarding their personal circumstances and/or financial position. The comments included in this publication are not intended to be a definitive analysis of tax applicability or trust and estates law. The comments are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.
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