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What Baby Boomers Should Know About Estate Planning

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We have mentioned here before the fact that many Canadians currently live without estate plans in place. The reality is that if you don't take the steps to create an estate plan, the assets and property you leave behind become subject to the governing legislation.

Dying without a will is legally called an "intestacy" and in Ontario intestacies are dealt with under Part II of the Succession Law Reform Act. Under this legislation, an intestate estate is generally distributed as follows:

1. If there is a spouse and no children, the spouse receives the entire estate.

2. If there is a spouse and children, the spouse receives the first $200,000.

(a) If there is one child, the residue goes to the spouse and child equally.

(b) If there is more than one child, the spouse receives one-third of the residue and the children share the other two-thirds equally.

3. If there is no spouse, the estate is distributed to the children equally.

4. If there are no children, the estate is distributed to the deceased's parents equally.

5. If there are no parents, the estate goes to the deceased's siblings; if a sibling is pre-deceased, that sibling's share goes to the deceased sibling's children.

6. If there are no siblings, the estate goes to the nephews and nieces.

7. If there no nephews and nieces it goes to the next of kin of equal degree of "consanguinity."

8. If there are no next of kin, the estate "escheats" to the Crown.

As you can see, this legislative scheme is very basic and rigid and does not provide for any part of the estate to flow outside of the family. Any long-term friends or charities that you may have wished to benefit are effectively shut out.

Once you have taken the initiative to create an estate plan, you are unfortunately not done. A good estate plan needs to be reviewed, revised and/or re-done over the course of your lifetime. In particular, there are certain life events that should prompt you to turn your mind to your existing estate plan. Marriage, divorce and children being born are obviously significant occurrences that demand the updating of estate plans. One thing that is often forgotten, however, is a significant change to your financial situation, either better or for worse. What made sense initially may not be viable when there is a dramatic increase or decrease of assets, as was recently witnessed during the financial crisis.

With current demographics, the massive transfer of wealth now occurring between generations, and the changing of family dynamics with the proliferation of second and third marriages, the prospect of estate litigation has never been more prevalent. In order to reduce the possibility of this stressful and expensive family fall-out, it is important to try to anticipate the kinds of things that you think may happen and then to try to reduce the possibility of those things happening. For instance, if you currently have children that are not getting along, chances are that that dynamic will continue and perhaps even be exacerbated when you die and the estate administration process begins. Predicting this type of thing and incorporating it into your estate planning can go a long way to avoid future disputes amongst family members.

The baby boomer generation should be paying particular attention to their estate plans. It is a generation that is participating in a large generational transfer of wealth and it is a generation that has increasingly more time on its hands. We often find ourselves advising our boomer clients to not run their estate plans around tax considerations; run your estate from your heart. Tax rules are important but can always be added into estate plans after the larger picture is considered. If you base your estate plan around the best tax methodology, you may not accomplish what was originally planned. We also often tell baby boomers that have more and more time on their hands to start their planning early in order to have flexibility going forward. For example, deciding you want to fund some tax liability on death might cause you to consider the possibility of purchasing life insurance or creating tax advantageous plans that will allow for staggered payments to lessen the final blow.

As we have mentioned before, communication is the best tool for avoiding estate disputes. It is never easy to have a conversation with your loved ones about your will and your wishes but it is extremely important to do so. Making your estate plan known to your family and doing it while you are alive is the key to managing expectations that may have taken a lifetime to accumulate.

*Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.