Where there’s a will: 5 estate planning pitfalls to avoid

Let’s just start off with a huge caveat. I am not a lawyer. I don’t prepare or give advice on the preparation of wills, powers of attorney or representation agreements. I do, however, help people to understand the financial implications of their decisions and so I often help guide people with those items. In short, I work with families and lawyers to assist in good decision making regarding making a will. Over the years I have observed a few pitfalls that seem to happen more often than others. Hopefully you can avoid them by learning from other people’s mistakes.

Pitfall #1: Not having a will, power of attorney and representation agreement. By far this is the biggest mistake that I see in my practice. Not having those items puts you at risk of having something happen that you really didn’t want to happen. It creates a greater likelihood that your beneficiaries will fight. It’s worth the money to get all three.

Pitfall #2: Not checking your homework. Don’t assume that the lawyer got it right. They may have misunderstood you. They may have made a simple error. It happens more often than you would think. Read over the will thoroughly before signing it and understand it. If you don’t understand a phrase or something feels off, mention it to your lawyer. Good ones will appreciate it. Believe it or not, I’ve seen wills where the simple math didn’t add up. Where 10 percent just simply got missed. Clearly no one, not the assistant, not the lawyer, not even the testator had actually taken the time to read through the list of beneficiaries and the distribution, because it was obvious it didn’t add up to 100 percent. A simple reading by anyone would have caught that. Fortunately, we caught it while the person was still alive, so the person could get the lawyer to correct it before it was a problem, but it may have caused a significant headache for the executor had it been left as is. The residue of the estate (that’s what’s left over after bequests, taxes and costs) should be distributed on a percentage basis and should always add up to 100 percent.

Pitfall #3: Gifting a percentage of the estate where a bequest of a specified dollar amount would be better. Or vice versa. It depends on a number of factors so discuss it with your lawyer. For example, let’s just say that Wilma’s will lists a bequest to a specific charity for $200,000 and Fred’s states that the charity should receive 20 percent of the estate. When Wilma dies, the charity gets $200,000 plain and simple. And that’s the end of it. When Fred passes away, the charity is just like all the other beneficiaries and will likely want to see a full reconciliation of accounts to see who got what. When specifying a flat dollar amount there is more risk that the bequest could become a larger part of the overall distribution if the estate was to decline demonstrably, but there is less risk that the charity will be overly involved in the estate settlement process. Just give it thought and make a conscious decision either way, knowing what the upsides and the downsides are.

Pitfall 4: Not communicating with heirs. I’ve seen firsthand estates that were very unequally divided (eg. 50/25/25) and yet the surviving family was okay with it because the parents communicated in advance their reasoning. I’ve also seen otherwise very civil families torn apart by simple misunderstandings and a lack of clarity in a will. The stress of dealing with money issues while grieving can be insanely difficult on families. And dealing with loss at the same time as money matters and possibly other emotional items often brings out the worst in people. Make it easy for them by communicating your plans in advance. Even if it’s something as simple as saying, “we decided that Suzie should get Mom’s wedding ring, but after that everything is divided equally.” If the distribution is unequal, you may get pushback, but better to deal with it head on now, while you are alive than to have the family torn apart when you pass.

Pitfall #5: Naming multiple beneficiaries on RRSPs, TFSAs, life insurance, etc. without understanding the implication. OK – this one isn’t about wills, but rather other estate planning items. I see this done usually when there is only one surviving spouse, and they have multiple children. And it’s usually done for a seemingly good reason: to save probate costs. And it usually works out. But what is often misunderstood is that this can lead to unintended consequences. Look at the Addams family, for example. If Gomez passes away and Morticia subsequently decides to name both Wednesday and Pugsley as her RRSP beneficiaries, then if Morticia and Wednesday go on a vacation together and the plane goes down, neither Wednesday nor her family would receive any of the RRSP proceeds. All of the RRSP proceeds will automatically go to the surviving beneficiary, Pugsley. Wednesday’s surviving family (I’m assuming that at this time she has a husband and children) will get none of it. That’s not usually what people intend. So, naming multiple beneficiaries for those items is something to be very cautious about doing. Sadly, it’s one of the most common mistakes that I see made all the time. Even by other financial professionals. A better option would be to not name anyone. Then it would form part of the estate, so the terms of the will would apply. And the will can (and usually does) have language that deals with those kinds of contingencies.

Estate planning is seldom part of anyone’s definition of fun, but it’s one of those adulting things that we should all do. By avoiding these five pitfalls you will help to ensure that your family doesn’t have an even greater burden than needed when you ultimately pass on.   

“In the case of a will, it is necessary to prove the death of the one who made it, because a will is in force only when somebody has died; it never takes effect while the one who made it is living.”

• Heb 9:16-17 (NIV)

Arnold Machel lives, works, and worships in the White Rock/South Surrey area. In 1995, he founded Visionvest Financial Planning & Services with the dual goals of “effecting positive financial change” and assisting clients to “Invest with Vision”. Since that time Visionvest has received numerous recognitions, including being voted in the top three in the Best Investment/Financial Advisor category by Peace Arch News readers for the past four years in a row.

Arnold has held the Certified Financial Planner® designation since 1998 and has served on many boards, currently sitting on the board of Abundance Canada (formerly the Mennonite Foundation of Canada), a national charity focused on helping Canadians give generously.

Questions and comments can be directed to him at dr.rrsp@visionvest.ca. Please note that all comments are of a general nature and should not be relied upon as individual advice. While every attempt is made to ensure accuracy, facts and figures are not guaranteed.