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Managing Your Money - July 31, 2015

“Easy” and “simple” decisions don’t always add up to the right financial/estate planning answers. Here are a few “because I can” decisions to consider just a bit more carefully.

Managing Your Money“Easy” and “simple” decisions don’t always add up to the right financial/estate planning answers.

Here are a few “because I can” decisions to consider just a bit more carefully.

I will add an adult child as the joint owner of my investments or property because it will make the distribution of my estate easier.

While there are certain situations in which joint ownership of assets can be a sound strategy, you need to look at it from many angles:

• Are you willing to give up control of the asset(s)?
• If your child separates or divorces, do you want the asset(s) potentially divided between your child and an ex-spouse?
• What happens if your child goes bankrupt?
• Are you okay with disinheriting the children of your child, if your child dies shortly before you do?
• Do you intend that your joint owner should share the asset(s) with other beneficiaries (including your other children) in your will or has no obligation to share?

If the joint ownership contract between you and your child is not explicitly worded, it could lead to expensive sibling infighting that could eat up the assets.

Why go through the expense of retaining a lawyer when all I need is a Will Kit?

For starters, you won’t have access to expert advice about whether your clause selections are appropriate to your situation. A simple “kit” program won’t ask key questions about your family and estate structure, such as:

• Is yours a blended family? If so, you could inadvertently disinherit children from a previous relationship.
• Is a beneficiary disabled? If so, it is usually advantageous to establish a discretionary trust in your will to protect that beneficiary’s ability to receive social assistance payments. If the beneficiary is mentally disabled, then a trust will also allow you to choose someone to manage the beneficiary’s inheritance.
• Is the charitable organization you wish to leave your estate to properly registered with the CRA as a charity? If it isn’t, you won’t get a tax credit.

Nor will a “kit” program provide tax advice or assess the different tax liabilities each beneficiary could face, leading to an inequitable distribution of your estate. In addition, when a lawyer prepares your will, the lawyer has certain obligations under the law to make a basic assessment of your capacity, which could become important evidence later on, if some family members want to challenge your will.

I will give significant sums of money to family members during my lifetime.

Whether the money is “gifted” or “loaned” to your children for whatever reason, without the proper advice and direction, there could be a minefield of problems down the road. For example, if the arrangement isn’t properly documented, it could be argued that it was, indeed, a loan or may result in one child receiving a significant gift during your lifetime that unfairly reduces another’s inheritance.

What you should or shouldn’t do in situations like these isn’t always clear. Your legal and professional advisors can bring clarity you need to every aspect of your financial life.