Don’t assume your client has a will

One third (31%) of Canadians between the ages of 45 and 64 don’t have a will, according to a CIBC poll conducted by Harris/Decima. And of those who do, the majority (44%) hasn’t updated it in more than five years.

“Having a will is one of the most foundational elements in protecting your assets and your family should anything happen to you,” says Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management.

For some clients, the word “estate” may evoke images of elaborate mansions with acres of gardens, but the average estate is comprised of several elements. “If you own investments, real estate, vehicles, or other personal effects, then you have an estate,” says Golombek.

Without a will, the government handles the division of a person’s assets rather than the family. “If you die intestate, meaning without a will, your estate will be administered in accordance with provincial law,” says Golombek.

He add, “This issue will become increasingly important as the country’s baby boomers are entering their retirement years. Given the mass amount of wealth this group has, the fact that nearly one-third of baby boomers are without any kind of will means they will not control who inherits their assets.”

Following is an example of how one family would fare without an estate plan, despite owning a home and significant investments:

Bill and Susan are married and live in Ontario, with their two children, Emily, age 18, and Tom, age 13. They have $1.1 million in assets, all held in Bill’s name—their home is worth $600,000 and their investments are worth $500,000.

If Bill were to die intestate, his wife would not be entitled to all of his assets. Under Ontario’s succession law, she would receive the first $200,000 of his estate—this is known as the preferential share, and the amount varies widely by province.

The remaining $900,000 would be divided equally between Susan, and the two children. Her maximum share of her husband’s estate would be $500,000, which isn’t even enough for her to obtain ownership of the family home.

Additionally, according to Ontario succession law, the daughter Emily would receive her $300,000 share at the age of 18 when she may not be ready to manage the sum responsibly. A trustee would manage the younger son’s inheritance until he turns 18.

Golombek stresses that account taxes and probate fees could also further erode the inheritances. “Fortunately, many of these pitfalls will be avoided by preparing an estate plan, which will also minimize delays and costs,” says Golombek.

However, family, succession and income tax laws are very complex and vary from province to province. “To make matters more complicated, the laws change frequently. Failing to understand and plan for applicable laws can have unintended consequences.”

For example, a new marriage can invalidate your will or certain bequests within it in some provinces. For this reason, it’s crucial that all Canadians and all clients are urged to continuously update their wills.

Golombek recommends helping clients start the process of building an estate plan by having a detailed discussion. “In building you a plan, your financial advisor will help you identify where and when you need the services of other professionals like your lawyer and accountant. By getting proper advice you will greatly reduce the risks of mistakes that can cost you in taxes or fees.”