A will is a key component of an effective estate plan. Advertisements for do-it-yourself will kits leave the impression that one need only fill in a few blanks to create a legally enforceable will. Be careful! ¹ (Sunlife)
Risks with do-it-yourself Wills
You may miss out on tax and personal planning opportunities that do not require a will
Without being properly informed about tax, estate, family and property laws, you run the risk that your wishes are rendered void
All else being equal, do-it-yourself wills are much more easily challenged than a will prepared after consultation with a lawyer
This illustration below is for illustrated purposes only and is a sample scenario.
Here is an example of Beth who used a do-it-yourself will kit
Beth a widow, has just retired. Virtually all of her wealth is tied up in her house, a small hobby farm, and some vacant vacation property. She now wishes to write a will to pass the property on to her children. Each of the three children are to receive one of the properties. Though the values are wide ranging, everyone is in agreement on who is to receive what.
Beth original Plan
She intended to use a do-it-yourself will kit. As advertised, she would be able to avoid the cost of having a lawyer assist her in the preparation of her will.
Her plan was simple. She would state in her will the 3 specific properties which would pass to each of her 3 children upon her death. With no other assets to speak of, she didn't see any reason to do anything more.
When Beth sat down with a lawyer friend, she got a few unpleasant shocks:
- Probate tax - by having all the property ownership pass under her will as intended, Beth was guaranteeing that her estate would pay the maximum amount of probate tax, in her case $6,000+
- Capital gains and land transfer taxes - Though her home would be protected, the other properties would be subject to over $80,000 (and growing) in capital gains tax at her death. Without a plan in place for payment of this tax, the unfortunate result might have been a sale of 1 or more of the properties. Land transfer tax might also have to be paid
- Unintended beneficiaries - Beth has taken no steps to protect her children's inheritances from a marriage breakdown. A child's estranged spouse could become entitled to part of the inheritance, particularly where the property is used as a matrimonial home - and in this case that was already happening.
- Payment of debts generally - While her present debts were not excessive, they would still have to be paid before the estate could be distributed. Without any financial resources having been set aside for such payments, one or more of the properties would likely have to be sold out of her estate
- Sale of 1 or more properties - The intended gift to each of the 3 children is the 3 respective properties. Any sale of a property, during her life or at death, would result in a change in the distribution structure, potentially in effect disinheriting one or more of her children
- Beth should consult a lawyer to put in place a properly constructed will
What Beth should do
- have a properly drafted will
- Powers of Attorney to protect her and her property during her lifetime
- Probate avoidance techniques such as outright gifts and transfers to joint ownership
- A mortgage-supported investment plan or other income mechanism
- Life insurance to cover her final expense, with premiums paid by her children
I am sure Beth would not want an unequal distribution of wealth to wreak havoc on family relations and lead to a will challenge.
Please let us know if you require further information.
Mike Busby (23-Nov-2021)
THE COMMENTS CONTAINED HEREIN ARE A GENERAL DISCUSSION OF CERTAIN ISSUES INTENDED AS GENERAL INFORMATION ONLY AND SHOULD NOT BE RELIED UPON AS TAX OR LEGAL ADVICE. PLEASE OBTAIN INDEPENDENT PROFESSIONAL ADVICE, IN THE CONTEXT OF YOUR PARTICULAR CIRCUMSTANCES. THIS ARTICLE WAS WRITTEN, DESIGNED AND PRODUCED BY MIKE BUSBY FOR THE BENEFIT OF MIKE BUSBY WHO IS A FINANACIAL ADVISOR FOR BRANDON LINDSAY INSURANCE AGENCIES, A TRADE NAME REGISTERED WITH INVESTIA FINANCIAL SERVICES INC., AND DOES NOT NECESSARILY REFLECT THE OPINION OF INVESTIA. THE INFORMATION CONTAINED IN THIS ARTICLE COMES FROM SOURCES WE BELIEVE RELIABLE, BUT WE CANNOT GUARANTEE ITS ACCURACY OR RELIABILTY. THE OPINIONS EXPRESSED ARE BASED ON AN ANALYSIS AND INTERPRETATION DATING FROM THE DATE OF PUBLICATION AND ARE SUBJECT TO CHANGE WITHOUT NOTICE. FURTHERMORE, THEY DO NOT CONSTITUTE AN OFFER OR SOLICITATION TO BUY OR SELL ANY SECURITIES. MUTUAL FUNDS OFFERED THROUGH INVESTIA FINANCIAL SERVICES INC.