You need to create your estate plan first then set up your will. Many people think that the will is the estate plan. In fact the will is simply a paper document and in no way addresses the same scope as a properly thought out estate plan.
Four reasons to have an up-to-date will:
- Control beyond the grave. It determines how your money is allocated after you die.
- It names an executor in charge of managing the assets until they are allocated.
- It appoints a guardian for minor children.
- It ensures your assets are preserved until a smooth transition takes place, while not triggering any further emotional distress or legal challenges among your beneficiaries.
I have seen wills that have been horribly out of date, not reflecting the change of one’s financial picture. I recommend you have your wills reviewed by a lawyer every three to five years or if there are significant life changes.
Do It Yourself Duct Tape Solution Or Professional Help?
In Ontario, you have three basic will types:
- Your formal will is most often drafted by a lawyer, signed by you and has to have at least two witnesses that are not your beneficiaries or their spouses.
- A holographic will has to be written completely in your own handwriting with your signature and does not need to be witnessed.
- Will kits are a third option, where you simply fill in the blanks on a standard template. Since they are not completely in your own handwriting, they are not eligible as a holographic will. If they are not witnessed appropriately, they can be invalid.
There is a lot of ambiguity and a host of problems that arise from these will kits, and the problems become visible once you are dead. At that point, it is near impossible to fix the problem. Keep in mind the money you spend preparing a will is an investment, one that will pay off if your estate avoids problems and challenges of an improperly prepared will. You can be assured that if there are problems, your beneficiaries will spend countless more dollars resolving it with their lawyers than you would have spent in putting a proper one in place.
Fourteen common estate planning pitfalls:
- If you have minor children make sure you understand the difference between executor, guardian and trustee. The executor settles the will and the guardian raises your kids. The trustee pays for your kids’ expenses.
- Decide specifically if you want estate equalization or estate fairness. The first divides everything in equal shares, the second partitions amounts out based upon other factors.
- If you accept the role of an executor, be aware of the responsibilities of your role.
- Only appoint someone who you trust as your executor, who is organized, can commit the time, and agrees to do it. They are under no obligation to accept your request and take the time out of their life to handle your stuff.
- Take time to properly consider a guardian, then for the love of God, speak to them beforehand and get their consent.
- If you have nominated a guardian for your children and a separate person to act as the trustee responsible for the money, ensure they have a good relationship with each other. When you die, they will be put in a very close and personal relationship.
- Don’t appoint two executors in your will who don’t get along. When the parents are gone, the gloves come off. Since they jointly have to sign on decisions, appoint a neutral third party as a tiebreaker.
- Watch out when appointing your child as your POA. It can be confusing for them to have the power to manage your money as they may forget they do not have ownership of it.
- Think before you add your child to your bank account. That child may be helping you out while your other child does not. But the helping child can easily convince themselves that the joint account was intended to be given to them by right of survivorship when you die. Unfortunately I have seen this happen firsthand, and it can ruin relationships between siblings.
- Don’t overlook two of the least asked questions by parents.
- How much will be needed to support my children when I am gone?
- If I become a guardian, will there be enough money provided in the estate to help me to support these children?
- The cost of raising a child to 18 and past their first university degree is always increasing. Often these figures are static and don’t anticipate the cost of needing to buy a larger house, larger car, take extra family members on vacation, camps, schooling, etc.
- Don’t plan your estate before you plan your retirement. Once you are ensured you will not outlive your money, the money left over can be planned for your estate.
- Don’t improperly exclude someone from your estate. Avoid challenges to your will by including a letter explaining why you want to leave some adult children or others out of your will.
- Thinking about not writing a will? Think again. If you die without a will you are considered to have died intestate. What happens then? The government disperses your assets with a formula and you did not work as hard as you did just for this to happen. If you were not already dead, the end result might just kill you as you would not be happy with the outcome.
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