It makes financial sense for a young person to wait to create a power of attorney

Creating a power of attorney

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Based on cost, a power of attorney may be something best left until later in life, says columnist Paul Hergott.

Does a power of attorney survive a cost benefit analysis? Maybe not for a young person.

Nailing down the cost end of the analysis would require calling around to lawyers and notaries to find out their rates, which I haven’t done. However, a bit of Internet searching led me to a handful of lawyer and notary websites. Listed fees for a single power of attorney ranged from $225 to $425. I found it interesting the cheapest rate was from a lawyer and most expensive from a notary, but this was a very small sample.

The absolute cheapest is the “do-it-yourself” option, which I wrote about in my column published March 10, 2024. I included a link to a free, online form provided by the Province of British Columbia. I’ve since learned, though, that some organizations might not honour a do-it-yourself document, even if the document is perfectly valid under the law. I intend to dig deeper and write specifically about that issue in a future column.

Because of my lack of market research, I will shoot low and assume a power of attorney is going to cost you at least $200, inclusive of taxes and disbursements.

The benefits of a power of attorney

One benefit is convenience. It’s impossible to put a dollar figure on convenience, so I’ll disregard it for the purpose of this analysis. Consider empowering your adult child to attend banking and legal appointments for you if you develop mobility issues.

Another benefit is peace of mind. I was recently consulted by a senior who was a victim of fraud. In consultation with their bank, they wanted to appoint their children as powers of attorney to help guard against being victimized again, a recommendation by their bank. I’ll disregard that unquantifiable benefit from the analysis as well.

The key benefit I’ve always pointed to when advising my clients is avoiding a much higher cost if you happen to lose your cognitive capacity without having a power of attorney in place. Loss of cognitive capacity means a loss of ability to handle your financial affairs.

Your spouse, if you have one, won’t be able to sell or remortgage your jointly owned home if you’ve lost the capacity to sign the transfer or mortgage papers. Your loved ones won’t be able to handle your day-to-day financial affairs.

Without a power of attorney, a “committee” will have to be appointed pursuant to the Patients Property Act, by way of an expensive court procedure. One law firm quotes $10,000 to $12,500 for an uncontested committee application. I’ll use the high end of that expense for this analysis.

Certainly, it’s worthwhile to spend $200 to avoid having to spend $12,500 but that’s not a fair analysis for a young person.

I recently recommended against spending that smaller amount of money to a young couple in their 20s.

It was not because I’m looking to make a bunch of money doing committee applications. I don’t provide that service. It was because a power of attorney is not “one-and-done”. Your choice of who to appoint as your power of attorney will likely change over time.

In your 20s, you’re likely to appoint your spouse, with a parent or sibling as an alternate in case your spouse dies before you do. In your 50s and 60s, you’re much more likely to choose an adult child as your alternate.

Is it worthwhile to incur the expense of a power of attorney in your 20s if you’re going to want a new one 30 years later? A proper analysis requires the odds that you will lose your cognitive capacity over that time period.

The Government of Canada provides the statistic that the prevalence of diagnosed dementia in Canadians aged 65 to 69 is 0.8%. I couldn’t find statistics for those aged 55, but obviously it’s something significantly less. The cost comparison of $200 to $12,500 is much higher, i.e. 1.6%.

But you need to take the value of the money into account if you took that $200 and invested it over 30 years. Using a Bank of Canada tool, assuming average interest and inflation rates of 8% and 2.5% respectively, that $200 would grow to about $950. That cost comparison of $950 to $12,500 is 7.6%.

The bottom line is, on a strictly financial and statistical analysis, it makes sense for a young person to wait to make their power of attorney until later in life when they would want to redo their power of attorney anyway.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Should you make your will using a cheap, online form?

Value of using a lawyer

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How about you save yourself the few bucks for that online form and write out a simple will on a piece of paper. My column, published March 3, 2024, gave the minimal requirements of a valid will.

Either way, you’ll end up with a valid will. Well, only if the online form gives you the right instructions for signing and witnessing it. So, have the above mentioned column handy.

If your goal is a valid will, you’ll save yourself hundreds of dollars.

Now I’m going to upsell you with the suggestion you should shoot higher than mere validity when making your will. It’s not self-interest to your estate planning business. I don’t want it. I get more requests for estate planning consultations than I can accommodate.

I suggest a goal to achieve a desired outcome. Getting the validity checkmark is of no value if your will won’t achieve what you want it to achieve. I also suggest a goal of losing as little as possible to taxes and fees.

Do you have a spouse? If so, you probably want them to benefit from your shared wealth if you die before they do. If your desired outcome is for your spouse to have complete ownership of all of your shared wealth, an estate planning lawyer will advise you how that can be accomplished without having any will at all. That can often be achieved by ensuring you name your spouse as beneficiary of life insurance policies, RRIFs, TFSAs, etc., and your spouse is named as joint-owner/holder of your home and all other assets.

But that might not be full extent of your desired outcome. You might also want your children to end up sharing in your wealth after your spouse dies. If you have a blended family, a lawyer will alert you to the reality that after you’re dead, your spouse’s feelings about leaving part of the estate to their stepchildren might change. There are ways to address that too. I’ve written about them in previous columns. You won’t find that with a cheap, online will.

There are a number of interesting issues that come up with children which cannot be addressed with a online will. You might have a vulnerable adult child who would be incapable of handling an inheritance. Or maybe there’s a significant imbalance about how you want your estate distributed amongst your children because of different levels of need, financial help you’ve already provided to one of them, care you’re receiving from a child or relationship issues.

None of those issues can be effectively handled with a cheap, online will.

Then there are contingencies. A key function of an estate planning lawyer is they can help you identify ways your life circumstances might change over time, which would in turn change your wishes. And they can help to incorporate those contingencies into your will.

Can you simply make a new will when your circumstances change? Not if you’ve developed dementia and no longer have the cognitive capacity to do so.

I’m just scratching the surface of issues that can arise in estate planning.

There’s also the tax end of things. An estate planning lawyer will be familiar with, and alert you to, important tax implications that could dramatically impact outcomes and refer you to a trusted estate tax accountant if you need those services.

The few hundred dollars a lawyer will charge for a will, or few thousand for more complex estate planning structures, come with important legal advice and expertise that will ensure your affairs are in order.

It is possible a cheap, online will might be perfectly suitable for your particular life circumstances and an estate planning consultation would turn out to be a waste of money. But you won’t know that without having had the estate planning consultation.

Reach out to me if you have any difficulty accessing the previous columns I’ve referred to.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Ways to disinherit a child that cannot be challenged in court

Disinheriting a child

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Thank you to the readers of this column for their patient suffering through five columns in a row about how to obtain an estate grant.

I’ll conclude that topic with a brief kudos to the folks at the Kelowna Court Registry. They issued estate grants on three of my last four applications in 3 ½ weeks which is an incredibly fast turnaround.

Next up is a follow through to a commitment I made months ago, at the end of a four-column series about disinherited children contesting a will.

Thank you to Wayne in Victoria, who reminded me of this commitment at the end of my column published Aug. 11, 2024.

“There are ways to completely sidestep a child’s ability to challenge the way you choose to pass on your wealth, even if everything points to a strong moral duty to that child. I feel it’s time to leave the unpleasant topic of disinheriting children for a while though, and will cover those ways at some point in the future,” I wrote back in August.

I invite you to read the four-column series if you’re interested in this subject. If you have any difficulty accessing the columns, let me know and I’ll help you.

Put simply, the way to sidestep your disinherited child’s right is to structure your assets so you won’t have an estate.

I’ve written about what it means not to have an estate in previous columns, but it can be tricky to get your head around that, so I’m happy to explain it again.

My August 18, 2024 column explained it in the context of not having to pay estate debts.

An important difference is that taking steps to structure your assets for the purpose of stiffing your creditors is unlawful under British Columbia’s Fraudulent Conveyance Act. It’s not unlawful to take those same steps for the purpose of disinheriting your child.

Jointly owned assets

When assets are owned jointly by two or more people and one of them dies, the deceased ceases to have any interest in the asset, leaving the survivor(s) as the owners.

Those assets do not form part of the estate.

This assumes the asset is owned in true joint tenancy, which includes the “right of survivorship” (the right of the surviving joint tenant to own the entirety of the asset on the other’s death). That’s important, because there are different types of joint tenancy.

If you have two children and want to disinherit one of them, you might transfer title to your house from your name alone to be held in joint tenancy with your favoured child. But if no money changes hands, there is a legal presumption that the favoured child doesn’t have the right of survivorship and will hold the asset in trust for your estate. That presumption can be overcome if you simply “paper” your intentions at the time the asset is transferred. But it must be done properly.

Registered assets

I am referring to Registered Retirement Savings Plans (RRSPs) and the other registered assets (RRIFs, TFSAs, LIRAs and LIFs) that allow for a beneficiary to be named.

If you don’t name a beneficiary, the proceeds of those assets get paid into your estate. If you do name a beneficiary, the proceeds are paid to your named beneficiary and do not form part of your estate. You can name your favoured child as beneficiary, excluding the one you want to disinherit.

Transfer before you die

Assets transferred out of your name and out of your possession while you’re alive do not form part of your estate and therefore cannot be included in a will variation claim.

A trust

A trust is a legal arrangement where you transfer ownership of assets to a trustee to manage those assets for the benefit of a beneficiary. There is a cool type of trust available to those aged 65 and older called an “alter ego” trust (an extension of yourself), where you get to be both the trustee and th beneficiary while you are alive. You also include provisions in the trust about who gets your assets on your death, the same as you would in a will. There is a version for couples called a “joint partner” or “joint spousal” trust that works in a similar way.

Assets in a trust don’t form part of your estate and therefore cannot be included in a will variation claim.

A trust is typically the best option for sidestepping a disinherited child’s claim but it comes with some expense to set up and maintain.

Each of these options prevent assets from forming part of your estate. If there’s no estate, your will is meaningless and your child’s right to challenge that will becomes meaningless as well.

Please get legal advice if you want to disinherit a child. My columns are not legal advice. I provide legal information which can lead you astray if you take steps without having a proper consultation with a lawyer.

I’ve been writing this column for more than14 months and I’m nowhere near running out of material but I welcome your questions because it’s more fun writing a column around an actual reader question.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Just because you can is not always a good reason to do something

Reasons for using a lawyer

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My wife took an online sourdough course in early 2020, just before the pandemic hit.

I’ve survived five years of continuous fresh sourdough loaves in my home. And not just loaves. The internet is replete with recipes for other things that can be made with sourdough or the “discard”—scones, bagels, pancakes, crackers, granola, buns, pizza, focaccia, cookies, cakes.

My sister-in-law, a bit of a foodie, said when referring to the incorporation of sourdough in other items: “Just because you can, doesn’t mean you should”.

There’s wisdom in those words. I’ve muttered them with conviction after installing a light fixture, an above range microwave and a dishwasher, and after putting together a barbeque or piece of Ikea furniture. All pains in the anoosdagoose.

Now, after a four-column series to help you apply for an estate grant without paying a bunch of money to a lawyer, my wife suggested I share those words in that context as well.

Just because you can apply for an estate grant without a lawyer, it doesn’t mean you should.

It was two years ago when my wife and I started working on our first estate file.

The words “frustrating”, “confusing” and “aaaaarrrrrrrggggghhhhhh!!!” come to mind.

Having done a bunch of them now, they are a walk in the park for us. But that first file was a royal pain.

They don’t come with a comprehensive set of instructions. And the information you can find online can seem like it’s in a different language.

I approach many decisions on a cost-benefit analysis. An obvious cost is the fees you would spend for a professional to obtain an estate grant for you.

I recommend you call around to get quotes, just like you would for any other significant purchase. There can be significant variations in price. If you do the work of obtaining the estate grant on your own, you will save that expense. Well, that’s not technically correct. The estate will save that money. Not you, the executor.

An executor is not out of pocket for the expense of hiring a legal professional to obtain the estate grant. That expense will be paid by the estate. The executor is saddled with all sorts of duties. And is entitled to claim a fee from the estate for doing that work. An executor fee will be reduced if they spend money on a lawyer to take on duties they should reasonably have handled themselves but it will not be reduced if they hire a legal professional to obtain the estate grant.

If you are the sole beneficiary, any dollar you spend on a lawyer comes out of your inheritance. But, if there is one other beneficiary, your extra work saves you 50% of that expense. Two others and you save one-third.

There are benefits to having a lawyer apply for the estate grant, apart from avoiding the frustrating exercise of doing it yourself. One is time. A legal professional will have systems in place to be able to get the job done efficiently, whereas you will be feeling your way through.

Also, you are bound make errors along the way. Many errors can be rectified quickly and easily but some can create more significant delays if steps need to be re-done. Some missteps can be quite complex to resolve.

Of course, a law firm’s systems will work efficiently only if they have the available resources to make your file a priority. Question firms to find out how quickly they can get to your file—not just to get the ball rolling, but to keep it moving down the field. Find a firm that can commit that the only delay will be waiting for you or others to provide needed information.

Another benefit of putting the estate grant into the hands of a legal professional is advice and guidance about your role as executor. I expect all law firms doing estate grant work will be available to answer your questions but get confirmation of that and ensure that reasonable enquiries won’t increase fees.

Finally, there are missteps that could expose you to personal liability, particularly if notices are not issued as required and this is not caught by the registry or if estate funds are released to beneficiaries prematurely.

This column is not about getting more business for lawyers. Any regular reader of my column knows that’s not what I’m about. It’s about helping you make an informed decision about whether or not you want to do something on your own just because you can.

I should add, I’ve never met a sourdough creation by my wife that I didn’t thoroughly enjoy!

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.