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Top 5 Estate Planning Mistakes in Ontario

The most common and important mistakes in estate planning are not about complex issues. They are basic mistakes about the fundamentals.

1. Not having a will

The rules for how an estate is divided in Ontario when there is no will (intestate succession) can have some shocking consequences. Remarkably few people are aware that if you die without a will:

  • Your common law spouse inherits nothing. Zero. (They might have a claim for support, but that is a very different thing).
  • If you are separated but not divorced from a spouse you legally married, they will inherit the bulk of your estate (The first $350k + a healthy chunk thereafter).
  • If you are legally married and not divorced, your parents and siblings and nieces and nephews get nothing.
  • If you have ‘step children’ that you have not legally adopted, they get nothing.

Unless all of these rules work for you, make a will now.

2. DIY probate tax avoidance

In estate planning, nothing creates more grief or wastes more money than DIY attempts to avoid probate taxes. Ontario probate taxes are actually quite low: approximately 1.5%, so on a $1M estate approximately $15,000. In contrast, using ‘beneficiary designations’ (on insurance, RRSPs, RRIFs, etc.) or “joint tenancy” (houses, bank accounts) to try to avoid probate often ends up costing far more than $15k in grief, unexpected income taxes, and legal fees.

There are lots of myths about using joint bank accounts and houses to avoid probate and save money. They are wrong, and if the beneficiary designations conflict with the will or your intentions the result can be a disaster. Do NOT name one of your children the beneficiary of your RRSP, or put your house or bank account in joint tenancy with an adult child unless you have first received very good, detailed, estate planning advice from a professional.

3. Assuming your children get along

Do your children really get along? Are they really facing similar financial circumstances and stresses? Many children have serious issues with their siblings. Do not assume that just because they are your children that they trust or work well with each other. This is particularly relevant to your choice of executor.

4. Choosing the wrong executor

Being an executor is a difficult job, not an honour. Good executors are prudent but decisive, can handle conflict (especially among beneficiaries), communicate well, are financially savvy, enjoy accounting and taxes, and must complete, send and receive many letters and forms. Ideally, an executor is tech savvy, and can scan, print, and email at will. Your favourite caregiver may be a wonderful person, but that does not mean they will be a good executor. You should clearly provide compensation for your executor. Consider aging – your executor must be able to perform when the time comes, which may be a long time from now. At the very least, you should have an alternate if the primary choice is unable to act, and I strongly recommend that you consider using a professional to handle this complex job.

5. Not giving enough away sooner or to charity

Gifts of things or experiences to your loved ones (to support their education, or travel for instance) while you are alive often have a much bigger impact on them than lump sums of cash when you pass away. Meaningful gifts to mark milestones like graduation often get remembered much longer than an inheritance.
Even modest gifts to charity can have a big impact on the intended recipients. Charitable gifts are a great way to communicate your values.  Also, a gift to a charity can create a legacy that is shared among your survivors giving them a common bond and remembrance of you that the same amount of cash, divided among them as inheritance, can never have. Lastly, there are tax benefits for gifts to charity.

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