Life circumstances change. So should your will, estate experts say
CALGARY — Estate planning expert Lynne Butler loves to tell the cautionary tale of a widow in her 80s who had six children and six real estate properties.
When it came time for her to make her final wishes known, she sat at her desk and hand-wrote a will that bequeathed her home to the child who lived with her and cared for her, and carefully doled out the other parcels of mainly rural land to each of her other five grown children.
What she didn’t account for was something called capital gains tax — all of the properties had gained in value over the decades and all except her principal residence (which is exempt) owed thousands of dollars in taxes. There wasn’t nearly enough cash in the estate to pay the tax bill.
“Normally, (the heirs) can’t inherit the property until the tax is paid, so what actually ends up happening is that one or more of the properties gets sold to pay the tax. So someone ends up not getting their property,” said Butler.
“And that’s where the fight begins, right? Whose property are you going to sell?”
The widow’s dilemma is all too typical of the drama that can split families apart when poorly written or out-of-date wills legally bind the hands of an executor who has to figure out how to make the deceased’s final wishes a reality.
Butler said the widow was lucky to have sought advice from an expert before it was too late.
Everyone should review their will every five to seven years or after every substantial life event, says Henry Villanueva, counsel for MacMillan Estate Planning in Calgary.
Those life events include birth or adoption of a child or grandchild, marriage, recovery of an inheritance, children moving out of the home and loans to relatives to buy a house or pay for education, as well as death, divorce and remarriage.
“When we pass — and we will pass — all of our assets are deemed to be disposed upon death, and along with this deemed disposition is an assessment for tax on the gain on assets at the point of death, to the exclusion of assets that are rolled over from spouse to spouse … or assets that automatically flow over, as when spouses jointly own property,” Villanueva said.
Butler said many people draft wills when they get married and have children because they want to ensure their spouse inherits their goods and that their children, if both parents die, are sent to a chosen guardian. Many people use do-it-yourself will kits because their wishes and assets are simple.
Decades later, however, the kids are out on their own and the family fortune has grown to include a home, retirement funds, bank accounts, part ownership of a vacation condo, stocks and bonds and multiple vehicles.
“A lot of people make their wills when they’re married and start having kids. Then one day they realize, ‘Well, now I’ve got grandkids.’ So it’s time to update. All their kids are over 18, they don’t need guardianships any more,” Butler said.
New wills should contain a clause revoking all previous wills. Minor adjustments to a will can be made via a “codicil” or addition, although Butler said that isn’t done very often anymore.
Changed circumstances could also mean changing your executor, noted Villanueva.
A close relative who was able 20 or 30 years ago to handle the crucial executor duties of listing assets and liabilities, then paying the bills and distributing the remaining assets to heirs, may not have the financial acumen to do the same now with a more complicated portfolio.
The original executor may now be elderly or infirm or may have moved out of province.
Butler said she’s a big fan of hiring a trust company to act as executor, especially if the estate is complicated. She said a professional executor has the knowledge to shepherd the process through efficiently without any emotional baggage.
The trust company’s fees will be extracted from the estate, she said, but are usually set at the same rate or lower than what a court might authorize to be paid for any executor, including a close relative, in recognition of the work involved.
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