Keeping your estate consistent
- Alerting about the different documents that determine what happen to your wealth if you use beneficiary designations and joint title tools, the difficulty of keeping those consistent and solutions for how to make your will the sole estate planning document.
Do the wishes in your will match your beneficiary designations?
When you set up your Tax-Free Savings Account (TFSA), you might have been prompted to name a beneficiary. If you did, the investments within your TFSA will be paid to that beneficiary on your death.
On submitting your death certificate and signing a form, the funds will bypass your estate and go directly to that beneficiary.
The instructions you gave to your executor in your will about how to distribute your estate will have no bearing on those funds.
The result is two separate documents that determine what happens to your wealth on your death. One is the beneficiary designation and the other is your will.
You might also have a Registered Retirement Savings Plan (RRSP). You can name a beneficiary for the investments within that plan as well.
And maybe investments within a segregated fund policy. One of the key reasons for purchasing a segregated fund policy as an investment is to be able to name a beneficiary.
If so, you’re up to four separate documents that determine what happens to your wealth on your death.
Then you learn that adding intended beneficiaries on title to your home as joint tenants will allow title to pass to those beneficiaries on your death without the need for probate. You follow though with changing title to your home to save them the expense and time of the probate process.
You now have one document determining what happens to your home on your death (the title), three documents determining what happens to those of your investments that have beneficiary designations and finally your will which directs what happens with your bank accounts, other investments, vehicles, etc.
Only one of those documents, your will, is likely to include plans for contingencies. Typical contingencies:
- If your primary beneficiary (often your spouse) dies, who gets your estate (often your children),
- If an adult child dies before you, their share goes to their children (your grandchildren),
- If a grandchild receives a portion of your estate before a certain age, provisions for your executor holding onto those funds and providing financial help for schooling until they reach a certain age.
To keep things consistent, you would need to change the beneficiary designations as well as title to your home as those contingencies occur.
Totally aside from contingencies, your wishes about how you want your wealth distributed on your death might change, also requiring all those changes.
If you fail to keep things consistent, in accordance with contingencies and changing wishes, your wealth won’t be distributed how you wanted.
A time might come where your best intentions about keeping everything consistent are not enough, if you lose the cognitive capacity to do so.
Estate planning can seem so simple. But with these various, separate mechanisms things can get complicated.
One way to avoid this problem is to ensure that everything will pass into your estate.
You then need to look after only one document: your will. Your will can contain all foreseeable contingencies. And if your wishes change, there is only one document to change.
You can do this by declining to make beneficiary designations for investments allowing for beneficiary designations. Or by naming your estate as the beneficiary.
And by leaving title to your home solely in your name.
But beneficiary designations and the use of joint tenancy are tools for eliminating or avoiding legal and probate fees for the probate process.
It’s important to understand that the expense of probate isn’t the boogieman most people think it is. Probate fees are approximately 1.4% – working out to about $14,000.00 per $1 million. The legal fees are another few thousand dollars.
That might be considered a small price to pay for the peace of mind, consistency and certainty of maintaining only one document that contains your estate plan.
There’s another way, though.
You can use those probate avoidance tools (beneficiary designations and joint tenancy) to have all your assets pass into the name of your executor who holds those assets on behalf of your estate.
If you ensure that everything passes to your executor, they can administer your estate according to your will without the need for probate, avoiding that expense.
It’s critically important, if you go this route, to be very clear about your intentions. Simply naming your executor as beneficiary of your investments might lead to the reasonable assumption that you intended those investments as a gift to your executor.
All of the mechanisms I’ve referred to in this column have complexities. I urge you to enlist the services of a lawyer to ensure consistent and effective estate planning. Not me, though, as I no longer offer those services – preferring to focus on the estate administration (probate) side of things.
