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Sunday, September 21, 2014

Estate planning mistakes women make

Not long ago, I was asked by a reporter to describe some estate planning mistakes women make. As a rule, I don't find a huge difference between the mistakes made by men and those made by women in terms of estate planning when both partners are alive. However, something that is indisputably true is that there are more widows out there than widowers. Therefore, women are in a somewhat different position than are men. Women are most often the ones who pass the estate not to a spouse, but to the children.

This means that women are more likely to be the person who needs care under a Power of Attorney, and more likely to be the one potentially subject to influence by greedy individuals. In today's post, I'm going to mention some estate planning mistakes women make when widowed, as well as some they make while their spouses are still alive. I think some of you readers will see yourselves in this post!

Here are some estate planning mistakes that I believe women make when they are widowed:

1. A woman will often add her children to her bank and investment accounts as joint account holders. The problem is that the desired outcome - to give someone access to help her with the banking - is not achieved. Instead she creates a joint account, which gives the children ownership. Money disappears, and because the other person has been made a joint owner, it’s legal for that person to take it. A better solution is for the woman to use a power of attorney document.

2. Similarly, a woman will sometimes put one of her kids’ names on her home. This is usually a home-made estate planning step that is taken because it’s believed that putting a child’s name on the house will avoid having to put the house through probate. The problems are numerous. The house is at extreme risk while the woman is alive, as it could be lost to the child’s divorce, business failure, bankruptcy, or law suit.  Upon the woman's passing, there is no certainty around what will happen with the title. It has been the law in Canada since 2007 that a property held in this way is to be held in trust for the estate so the avoidance of probate will likely not be successful in any event. Finally, disputes erupt among the kids about what is supposed to happen to the house, and just as importantly, the contents of the house. A better solution is to  leave the house in her own name and deal with it in her will.

3. Even worse, a woman will sometimes put all of her kids’ names on her home. This is done partly to avoid probate, but mostly because for some reason, parents think it’s a way of treating the kids equally.  The problems with this idea include all of the same problems as #2 above, and more. It’s impossible for three, four, or more adults and their families to occupy the home, or to agree on when to sell it, or to agree on a selling price. Also, typically one of the kids will move in on the grounds that it is his/her house now and refuse to co-operate with anyone in terms of selling, paying rent, distributing household goods, etc. A better solution is to leave the entire estate (not just the house) among the children, with flexibility in the will that allows one of the kids to buy the home out of their share if desired.

4. A woman usually refuses to believe that her kids would be anything less than scrupulously honest, meticulous, and hard-working if named as executor.  Mothers are completely blind when it comes to their kids. The problem is that women tend to name their children (particularly their sons) to be executors and/or powers of attorney despite the fact that the child might have a gambling addiction, a drug problem, a string of bankruptcies, has never worked and still lives at home with Mom at age 45, or other significant problems. Money disappears.  Items disappear from the estate. The child treats the estate as his or her own pocket money. Beneficiaries don’t get what they are supposed to get. There is often a lawsuit by other beneficiaries. A better solution is to name an executor who is not a family member, or name one of the kids who is better suited to the job.

This is not to say that women only make estate planning mistakes once they are widowed. Far from it. The following are some estate planning mistakes that women make while their husbands are still alive:

5. A widespread and serious error is assuming that a common law wife has the same rights as a married wife when her husband passes away. People are led by television programs and widespread misinformation to believe that common law is the same as being married, including when the husband dies. Unfortunately, this is completely false. Women find out on the death of their husbands that they no longer own their home, that they don’t get half of everything, and in some cases get absolutely nothing. Each province has its own laws regarding inheritance so in some places common law wives are safe, but it’s a mistake not to know where you stand. A better solution is to talk to an experienced estate planning lawyer. If the husband won’t attend, the woman should go on her own.

6. In today's modern landscape of blended, single parent, and same-sex parent families, many women do not understanding the rights of their children upon the death of the mother or the father. People in general think of their children as only the children who  are in their immediate household or family. The problem is that the word “children” – whether in a will or under intestacy law - includes biological children, whether legitimate or illegitimate, but not step-children. It includes children that you have adopted, but not a child of yours who was adopted by someone else. Whether or not there is a relationship with the child is immaterial. In blended families, this frequently leads to only some of the children in a household receiving an inheritance on the death of the father, or even none of the kids in the house getting anything (because they were never adopted by the father) while an unknown illegitimate child gets everything.  This may leave the woman in an impoverished or reduced financial condition, not to mention bitter as hell. A better solution is for both parents to have wills made by an experienced lawyer, and those wills need to spell out which children are to inherit.

7. Women may fail to clarify the terms of any loans made to one of her kids. The problem is that loans to the kids are almost never documented. On the death of the parent, 100% of the kids who have received loans will say the deal was that they didn't have to repay it. If the executor is one of the other kids, there will be a dispute between them. The law requires the executor to collect any and all debts of the estate, and a loan to one of the kids is a receivable that needs to be collected. Even if the loan is characterized as a gift, this doesn't solve the problem because a gift to a child is considered in law to be a repayable advance on their inheritance. A better solution is to give instructions in the will about what to do with the money loaned or given to the child.

8. It it also a mistake to assume that because she is married, her husband will get everything even if she doesn't have a will, and vice versa. The problem is that wives assume that on the death of their spouses, they will “get everything” but that is not true unless the husband has a will that says so. Wives will receive any property or money that is jointly held. They will also receive any funds in which they are specified as a beneficiary, such as life insurance or RRSP/RRIF. However, if the husband owns anything in his own name (a business, cabin, vehicles, bank account, boat) and does not have a will, the items in his own name must be split with his children. A better solution is for both spouses to have solid wills that look after each other properly.

1 comment:

  1. Quote "a gift to a child is considered in law to be a repayable advance on their inheritance" What dollar amount and age of child does this apply to? Obviously a $20 gift to a 10 year old is different than a $100000 gift to a 30 year old.

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