Estate planning is a crucial step in ensuring that your assets are distributed according to your wishes after you pass away. Unfortunately, many people make costly mistakes when it comes to estate planning in Canada. At Clever Banker, we like to write about costly mistakes others have made to help you learn from them (read our Common Investing Mistakes article). Here are some common estate planning mistakes to avoid:
Not Having A Will
A will is a legal document that outlines how you want your assets to be distributed after you pass away. If you don’t have a will, the government will decide how to distribute your assets according to the laws of intestacy in your province or territory. This may not align with your wishes, and can result in your assets being distributed in a way that you didn’t intend.
Additionally, without a will, your loved ones may have to go to court to have someone appointed to manage your affairs, which can be time-consuming and costly. In some cases, failing to have a will can lead to conflicts among your loved ones over the distribution of your assets. Overall, not having a will can cause unnecessary complications and stress for your loved ones at a difficult time.
One real-life nightmare story of not having a will is the case of Prince, the musician, who passed away in 2016 without a will. At the time of his death, Prince was worth an estimated $300 million. However, because he didn’t have a will, his assets had to be distributed according to the laws of intestacy in Minnesota, where he lived.
This resulted in a lengthy and complicated legal battle among his siblings, and it took over two years for his estate to be settled. Additionally, because Prince didn’t have a will, the government took a significant portion of his estate in taxes. Had he had a will, he could have minimized the taxes paid by his estate and ensured that his assets were distributed according to his wishes.
Not Keeping Your Will Up-To-Date
Not keeping your will up-to-date can cause a number of problems. If you don’t update your will after major life events, such as the birth of a child or the death of a beneficiary, your assets may be distributed in a way that you didn’t intend.
For example, if you have a child after making your will and don’t update it to include them, they may not inherit anything from your estate. Just like with not having a will, failing to update your will can lead to disputes among your beneficiaries, which can be costly and time-consuming to resolve. Overall, it’s important to review and update your will regularly to ensure that it accurately reflects your wishes.
One real-life issue of not updating a will is the case of Anna Nicole Smith, the model and actress, who passed away in 2007. At the time of her death, she had a will that was made before the birth of her daughter, Dannielynn. However, because she didn’t update her will after the birth of her daughter, the court had to decide how to distribute her assets. This resulted in a lengthy and complicated legal battle among her loved ones, and it took over five years for her estate to be settled. Had she updated her will to include her daughter, she could have ensured that her assets were distributed according to her wishes.
Not Naming A Power Of Attorney
A power of attorney is a person you appoint to make decisions on your behalf if you become incapacitated. Without one, your loved ones may have to go to court to have someone appointed, which can be time-consuming and costly, and cause unnecessary suffering.
The case of Terri Schiavo, an American woman who was in a persistent vegetative state for several years, highlights this. Because she didn’t have a power of attorney and didn’t have a living will outlining her end-of-life wishes, her husband and parents were involved in a lengthy and bitter legal battle over her care.
The case ultimately went to the Supreme Court, and it took years for a decision to be made about her care. Had Terri Schiavo named a power of attorney and had a living will, her end-of-life wishes could have been carried out without involving the courts.
Not Considering Tax Implications
Estate planning can have significant tax implications. It’s important to ensure that your plan is structured in a way that minimizes taxes for your beneficiaries.
It’s important to consider tax implications when it comes to a will because estate planning can have significant tax implications. Depending on the value of your estate and how it’s structured, your beneficiaries may be required to pay taxes on the assets they inherit, such as on real estate.
You can help ensure that your beneficiaries receive as much of your assets as possible by consulting with a professional and structuring your estate plan in a way that minimizes taxes. Additionally, failing to consider tax implications can result in your estate being hit with a large tax bill, which can reduce the amount of money available for your beneficiaries.
One famous case of not considering tax implications in a will is the case of Albert Einstein, the physicist. Einstein passed away in 1955 and left his estate, which was worth an estimated $12 million, to his sons. However, because his estate was not structured in a way that minimized taxes, his sons ended up paying a significant amount in taxes on the assets they inherited.
In fact, it’s been estimated that more than half of Einstein’s estate was lost to taxes. Had Einstein consulted with a professional and structured his estate plan in a way that minimized taxes, his sons could have received more of his assets.
Not Communicating Your Plans To Your Loved Ones
It’s important to discuss your estate plan with your loved ones. This ensures that they are aware of your wishes and how your assets will be distributed. This can prevent misunderstandings and conflicts after you pass away.
The case of Howard Hughes, the billionaire entrepreneur and aviator, highlights the need to communicate your plan clearly. Hughes passed away in 1976 and left a will that was handwritten and difficult to interpret. This resulted in a lengthy and complicated legal battle among his relatives over the distribution of his estate. This froze an estate worth an estimated $2 billion. Had Hughes discussed his will with his loved ones and made sure that it was clear and easy to understand, it’s likely that the disputes over his estate could have been avoided.
In conclusion, estate planning is a crucial step in ensuring that your assets are distributed according to your wishes after you pass away. Avoiding these common mistakes can help ensure that your estate plan is effective and will carry out your wishes.
