Talk to parents about their wills and wishes

Wills and blended families

Photo: Contributed

Wills and blended families

Last week, I encouraged adult children to talk to their parents about their eventual inheritance.

It can feel like a selfish and cringy topic. But in my experience, it’s a topic parents are interested in as well because they tend to be very concerned about ensuring that their wealth passes on to their children.

The context I provided was minimizing the amount of inheritance that will go to the government in taxes. I suggested that your folks might not realize how much benefit can be achieved with the advice of an estate tax planning specialist. They would likely appreciate you sharing that information so they can act on it.

Another important context for a heart to heart about your inheritance is a blended family.

This one is trickier but like the tax issue, you and your parent likely share some common ground. Your parent very likely wants to ensure that you end up receiving a fair share of their hard-earned wealth.

The “fair” part is one aspect that can get tricky. Nobody cares about being fair to the tax collector. Your parent does want to be fair to their spouse and their spouse’s children.

You and your parent might have differing opinions about how your parent’s new spouse and their children should benefit from the wealth your parent brought into that relationship.

Your parent would want to include their spouse in those discussions.

I can’t point to a quote from a famous person on this, but I think it’s commonly understood that the trickier the conversation, the more important that it occur.

By having the discussion, you can ensure that your views and feelings are heard. You will also benefit from hearing your parent’s views and feelings. Whether or not your sense of fairness comes to an alignment, you will understand your parent’s decisions and not be left wondering after they’re gone.

That’s not the most important reason to have these discussions, though. The most important reason is to ensure that the share of your parent’s wealth that they want you to receive, whatever that might happen to be, will actually go to you.

On this point, you and your parent are 100% aligned.

Your parent might not be aware that this is not a simple matter in the context of a blended family. They might have a will that leaves everything to their spouse if they die first, with their spouse’s will dividing everything between their combined children when their spouse dies.

They might not know that this is a horrendously unreliable arrangement.

I should keep track of how many calls I get from disinherited stepchildren. There’s nothing stopping a stepparent from changing their will after the parent passes away.

Changing their will wouldn’t necessarily be about disrespecting their deceased spouse’s wishes. They might have entered into a new relationship, which comes with obligations to their new spouse and their new spouse’s children. Their relationship with their stepchildren might have faded or even soured over time.

The stepparent might have had the full intention of including their stepchild in their will while their spouse was alive. But all sorts of scenarios can come up that can change those intentions after their spouse passes away.

I’ve written a series of four columns that discuss why this arrangement is unreliable and offer more reliable solutions. You can help your parent recognize this important issue. They may be just as motivated as you are to address it. Your stepparent might also share that motivation because they’re in the same boat if they were the one to die first.

Effective estate planning for a blended family will be more expensive than a simple will. Your frugal parent might not want to make that investment to secure your inheritance. If so, I suggest that it’s worth it for you to provide the necessary dollars.

If you have difficulty finding the columns I referred to, please reach out to me and I’ll help you.

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

Steps to take to minimize the tax impact on your estate when you die

The tax impact of dying

Photo: Pixabay

A key estate planning objective is for the bare minimum to go to the government, whether that be through income taxes or probate fees.

Have you talked to your parents about your eventual inheritance?

No? Does the mere thought of it feel unbearably uncomfortable, especially if you perceive it to be an entirely selfish topic? It’s not as one-sided as you might think.

Parents consulting with me are deeply concerned about their estate going to their children as smoothly and cheaply as possible. Nobody likes paying taxes. A key estate planning objective is for the bare minimum to go to the government, whether that be through income taxes or probate fees.

Parents love their children. They want the process to be as trouble-free and hassle-free to their children as possible. You and your parents are on common ground with these goals.

Your parents might not realize that achieving these goals can take more than just having a will naming their children as beneficiaries. The tax side of things is particularly important. Canada doesn’t have a death tax, but death can come with a massive tax hit because of how our income taxes work.

Consider your parent’s RRIF. Canadians receive an income tax benefit as we pay into our RRSP. We often get tax advice to maximize that benefit, timing our contributions for when we’re in the highest tax bracket.

After the RRSP is converted to a RRIF, we pay income tax as money is paid out of that fund. We often get tax advice about minimizing that tax. For example, making a large withdrawal during one taxation year might cost much more in tax than spreading it out over a number of years.

But we seldom get tax advice about what happens when we die. I doubt many people realize the entire balance of our RRIF will be taxed as lump sum income the year of our death.

Then there’s your parent’s other investments. They’ve hopefully received tax advice about minimizing taxable capital gains. They would hopefully know that selling stocks that they’ve held for a long time will trigger a taxable capital gain, so doing so might best be spread over a number of years. But do they realize that all unrealized capital gains will be triggered the moment of their death, even if those stocks aren’t actually sold?

Then there is investment property. Do they realize the increase in value, possibly hundreds of thousands of dollars, will be a taxable capital gain the year of their death even if the property isn’t sold?

With the maximum income tax rate for British Columbians in the range of 53%, that is high stakes stuff. It’s one thing to get tax advice about minimizing your ongoing, annual tax burden, it’s quite another to get advice about minimizing the overall tax burden on your estate on your death.

I expect your folks would appreciate learning about this important estate planning consideration, however it comes to their attention. If it feels uncomfortable for you to bring it up, perhaps use this column as an ice breaker.

Estate tax planning requires the expertise of an estate tax specialist. Reach out to me if you would like help finding an accountant with those qualifications for your folks, or for your own estate planning.

I hadn’t intended this column to focus on tax. There are other important bits and pieces to discuss with your folks to best prepare for the inevitability of their deaths.

I’ll get to those in later columns.

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

Make sure your will be found after your death

Will accessibility

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It's important that your will can be easily located after you die.

Do you know where your original will is? Does your executor know where it is? Is it easily accessible?

You can save your beneficiaries significant additional expense and delay if you ensure your original will is easily accessible and eliminate the risk it cannot be found when your executor comes looking for it, leading to a legal presumption you destroyed it on purpose to revoke it.

One issue is easy accessibility. The original will is the starting point for the probate process. Search my column archives for a series of columns with do-it-yourself instructions about the process. If you have difficulty, let me know and I’ll help you find them.

Leaving your will with the lawyer who prepared it doesn’t guarantee easy accessibility. He or she might have changed law firms, taking your will with them. She might have retired or died. The law firm may no longer exist.

Maybe your mind is at ease on this point because the lawyer has systems in place, reaching out to you annually to ensure they have your current address and contact information and confirming they are continuing to hold onto your original will.

If not, I recommend you track down your will and move it into the hands of a law firm that does have those systems in place.

If you took your original will with you to keep it safe, I recommend that you reconsider.

Fires do occur. I recently helped an executor whose mother’s will went up in flames when her home was destroyed in the McDougall Creek Fire. Had I charged her for my services, it would have been an expensive process tracking down a copy of the will from a retired notary and preparing a Statutory Declaration for the notary to affirm the validity of the copy.

A fresh will could not have been made because the mother no longer had the capacity to make one.

If you have your will tucked away in a fireproof safe, does your executor know where that is and how to access it? If you’re relying on a safe deposit box, have you arranged for your executor to have easy access on your death or will they have to produce a death certificate to the bank, along with proof (without the original will because that’s in the box), that they are your executor?

Please ensure your original will is easily accessible to your executor and keep your executor informed about where it is. That will save them expense and time trying to track it down.

What happens if your original will cannot be found? Much more expense and delay.

The recent case of Galloway Estate (Re), 2023 BCSC 1204, tells such a story.

James Galloway’s original will could not be found and a legal fight ensued. On one side of the fight was the beneficiary James named in his will, a close family friend named Sharon. On the other side was his sister Joan, with whom he had been embroiled in bitter litigation. Ironically, that litigation had been about their father’s estate.

Joan stood to benefit if there was no will because James had no spouse, no children and his parents had predeceased him. Absent a will, she would receive his estate.

An interesting fact cynical folks will find relevant is Joan was the first to search James’ home for a will. It was surprising the will couldn’t be found?

The named beneficiary, Sharon, faced a legal presumption. If you keep your original will in your possession and it cannot be found, the law presumes you must have chosen to revoke it by destroying it.

That legal presumption can be rebutted by evidence pointing away from a purposeful destruction of the will. Fortunately for Sharon, she was successful in marshalling that evidence. But the legal fight, costing tens of thousands of dollars, would have been avoided if the original will had been kept safe, accessible only to James’ executor.

I can’t speak with authority about how other lawyers do things but I expect it’s common practice for clients’ wills to be kept in a locked, fireproof safe.

So, as long as there’s no charge for the service, and you are contacted annually to maintain an ongoing connection, I recommend you take advantage of the service.

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

Changing your will is not difficult and no one has to know until you die

Changing your will

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Your will is not permanent, you can change it or replace it at any time.

This may come as shock for some but wills are not permanent.

It’s reasonable if you thought they were, with all the pomp and circumstance around their execution but they’re not carved in stone tablets Sometimes just printed on a heavier paper stock.

Great care is taken for the will-maker to initial every page and sign the last, with each witness then following suit. There is often a fancy looking cover page and a special blue corner stapled into place.

The carefully signed will is then stored in the lawyer’s locked and fire-proof safe, if not taken by the will maker to put into a safe deposit box.

But the very next day, you can scrawl, “This is my last will. I leave everything to my illicit lover, Trixie Tinglebottom” on a napkin, your signature witnessed by two folks who are not Trixie, and all that pomp and circumstance is erased. No lawyer or notary involvement. No special paper, fancy cover page or special blue corner. No multiple pages of legalese. And you needn’t notify anyone—not even your spouse (legal or common-law). You can keep your new will as confidential as your tryst with Ms. Tinglebottom.

The pomp and circumstance will remains untouched at the lawyer’s office or in the safe deposit box, no one the wiser that it’s not worth the fancy paper it’s printed on.

To ensure your surreptitious will is uncovered on your death, you can register it with British Columbia’s Wills Registry. Don’t worry, nobody without your authorization can search that registry to discover your secret until after you’ve died.

Extra steps will have to be taken for Ms. Tinglebottom to benefit from your estate if you die before your spouse. You’ve likely structured your affairs so that all your assets will end up in your spouse’s hands without your will even kicking in. You’ve likely named your spouse as beneficiary of investments held under registered tax umbrellas (RRSP/RRIF, TFSA, etc.). Those assets pass directly to the named beneficiary regardless what your will says, passing outside your estate.

It’s the same with life insurance benefits. You need to take the extra step of confidentially changing your beneficiary designations to name Ms. Tinglebottom.

Then there’s your home, which is likely registered in joint tenancy with your spouse so that the survivor of the two of you will become the sole owner after one of you dies without any tax or probate fees.

You will need to take the extra step of “severing” that joint tenancy ownership, which can be done unilaterally, without telling your spouse. It’s a simple matter, the result being you and your spouse will each own 50% of the home with each of your wills kicking in to say what happens to each of your shares on your death.

Your spouse might find out about that little move because land title registrations are publicly searchable. But how many of you randomly search title to your own home?

Note that Ms. Tinglebottom is no more secure than your spouse had been. With a few strokes of a pen, you can substitute your new lover, Mr. Wonderwand, with no notice to Ms. Tinglebottom.

If you have trust issues, steps can be taken to lock down your spouse’s estate plan. Beneficiary designations can be made irrevocable. Binding agreements can be made that your will won’t be changed without your spouse’s consent. Assets can be put into the umbrella of a trust that cannot be altered without agreement. But extra protections cost extra. You can expect to double or triple, or so, the cost of your estate planning.

Do you have questions? Please e-mail me. If there’s enough interest, I’ll write a follow-up column.

Please remember the generic legal information and opinions I provide cannot be relied on as legal advice. To provide reliable legal advice, I must obtain sufficient information about you and your wishes to be able to advise you about how the law applies to your particularly circumstances.

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