Why Wills Matter – August 6, 2012
Whenever the topic of Wills comes up at dinner parties or cocktail parties (which admittedly, isn’t all that often), it seems that at least one of the partygoers does not have a Will. Rather than trot out a doomsday scenario over dance music, I usually provide a few quick comments and let the conversation return to happier topics. On the other hand, I don’t want people to think that Wills are unimportant. Accordingly, since the party music is no longer playing, I thought I’d take the time to list why Wills matter and to answer some of them many explanations I’ve heard about why a Will isn’t necessary.
If you don’t have a Will, here are some of the major problems that come up:
- Your family will need to figure out the best person(s) to take care of your children. In your Will, you appoint guardians and alternative guardians and the courts will honour your wishes in most situations. Without this guidance, family members may disagree about where the children should go. Moreover, in some cases, the best people may not even be family members. These people will likely not get the job without a Will if you have family members who might want or feel honour-bound to apply for the role;
- Someone will need to apply to be your Administrator, since you have not appointed an Executor. This will mean, at the least, that your estate will need to pay the considerable expense of having a family member apply for the job. This will also mean added delay and perhaps the wrong person getting the job, which can mean squandering more money. This person likely won’t have the same flexibility to manage your affairs than the person you name in your Will, as most Wills provide extra powers to allow your executor do their job as effectively as possible.
- The wrong people might get the money. If you don’t have a Will, the law lays out a formula about how your estate is to be divided. This can be particularly troubling if you are married with children or don’t like the default formula. Even if the Wills, Estates and Succession Act is enacted in its current form next year, 50% of your estate after the first $300,000 (or after the first $150,000 if there are children from an earlier relationship) will go to your children immediately. If they are minors, the Public Trustee will manage the money. If they are adults, it will be theirs to spend without restriction. As an added problem, this might mean that your spouse is forced to sell assets to fund the children’s share and an increased income tax bill for the estate, as only assets that pass to your spouse can be rolled over tax-free.
- The right people might get their money at the wrong time. As just indicated, any heir over 19 will get their inheritance with no strings attached unless they are declared incompetent, which isn’t an easy feat. A Will can allow you to appoint someone else to decide what expenses are appropriate and make investment decisions until an age you feel is appropriate. You can also give your children control of their money gradually over time so they can make little mistakes but not big ones. Likewise, if your heirs have creditor or substance abuse issues, giving them their inheritance directly might either end up helping only the creditors or providing fuel to feed addictions.
- You lose the opportunity to provide tax savings for your heirs. In addition to protecting your heirs from themselves, trusts can also provide significant tax savings for them so that their inheritance can go further. In fact, some people set up trusts for that reason along and set things ups so that beneficiary has complete control over their inheritance anyway.
One of the most common reasons people give when explaining why they choose not to have a Will is that they either own everything jointly with their spouse or have beneficiary designations that can stipulate who gets what after they go to the great beyond. This might be true, provided that really everything, including all types of vehicles, is jointly owned so long as both partners don’t die at the same time. On the other hand, if they die in a common disaster or both the survivor gets around to making a Will, then things get pretty messy pretty quick. On a related note, as indicated in my last blog, using simple beneficiary designations also has some of its own problems. As a result, I suggest that is still probably worth getting a Will done just in case.
Anyway, I think I hear the party music starting again and it is probably time for me to step down off of my soap box and rejoin the party.