The basic estate planning documents that everybody needs

The term "estate planning" sometimes makes people think of millionaires who live behind wrought iron gates with a butler at the door. But all it really means is that you've put plans in place to deal with your eventual passing and for the possibility of losing your mental capacity. Estate planning isn't just for the wealthy. Everyone with a family needs to think about estate planning.

Most people know they need a will, even though a good half of Canadian adults don't have one. Even with a valid will in place, you haven't fully prepared yourself to protect your family and your assets. Your will does nothing to help you or your loved ones if you are alive but unable to make decisions due to dementia, illness or injury.

Here are the basic documents that everybody should have:

1.  A valid will that is kept up to date to reflect changes in your life. The will should be prepared as part of a bigger estate planning picture that takes into consideration your joint property, your designated beneficiaries on policies and plans, your insurance coverage and of course your plans for your family members left behind. All of these things must be co-ordinated so that your documents don't contradict each other or create confusion that will end up being sorted out by the courts.

2.  An Enduring Power of Attorney, which is also called a Continuing Power of Attorney, or a Power of Attorney for Property. This document allows you to appoint someone to make financial decisions for you if you should be unable to do so for yourself. Most commonly this document is used when a person develops dementia, but it may also be used if you should be severely injured in an accident or become very ill.

3.  An Advance Health Care Directive, also called a Personal Directive or Health Care Proxy. The person you name in this document will be able to make decisions for you about medical issues, health care and personal issues. The document should also contain your instructions on end-of-life decisions.

The above three documents are usually sufficient for individuals whose estates are not complicated. Business owners may find that they need additional estate planning documents, such as:

4.  Shareholders' Agreement, sometimes called a buy/sell agreement. While not solely an estate planning document, a shareholders' agreement should address what is to happen with shares of a privately held company if the owner should pass away or lose mental capacity.

5.  Life insurance to fund the buy/sell agreement.

6.  A written business succession plan that sets out who is to take over the family business, and how that plan is to be implemented financially.

7.  A holding company may be needed to funnel excess cash out of an operating company to improve the potential tax situation.

Individuals differ, and so do their estate-planning needs. You may find that you have specific goals that will require additional documents to be made. For example, you may wish to leave a Memorandum of Personal Effects that gives certain items to specific people on your passing. You may wish to leave a Letter to Executor that leaves personal messages, gives further explanations or expresses wishes to your family members.

Start by making sure that you have the first three documents in place and keep them up to date. An experienced estate planning lawyer can help you decide what else you might need or want to protect your loved ones.

Make Things Easier for Your Family and Executor(s)...Designate Personal Effects in Your Will

This article from Mark Goodfield, aka The Blunt Bean Counter, is a must-read for anyone planning their wills. I'd also recommend it to executors who are wondering how on earth they are supposed to divide up personal effects with no guidance from the will.

The article covers the area of personal effects and household goods of the deceased, a mine field of problems and struggles if not properly covered in the will.

Click here to read the article.

Another tool that we can use to help out our families and executors is a Memorandum of Personal Effects, or as most people refer to it, a "list". I am referring to a hand-written list of names of family members together with the items you would like them to receive upon your death. This is a popular idea, but has its drawbacks, so you must make sure you are doing yours correctly if you want it to be a help and not a further cause of strife.

A Memorandum is often confusing because the deceased forgot that it was going to be read by someone who isn't a mind-reader. Some of the most common causes of confusion are:
- referring to "my favourite ring" or "my mother's earrings" or some other characteristic of an item that nobody will be able to identify;
- referring to "my necklace" when there are several necklaces;
- referring to the beneficiary as "Joe", when the deceased has an uncle named Joseph, a cousin named Joseph Jr., and a nephew named Joey;
- including items that cannot be included in a Memorandum, such as sums of money or real estate. Including these items may turn your Memorandum into a will, may revoke your current will, and definitely cause even more confusion for your family.

The best idea is to ask your lawyer about the Memorandum at the time you are making your wills, and to receive some instructions and ideas from him or her.

Warring over the sentimental items in an estate

I've come to realize over the years that a dispute over a parent's estate is more likely to break out over personal possessions than it is over money. Some of you might be skeptical, but I firmly believe this to be the case. A case where eleven siblings fought over one gold ring is an extreme case, and I've attached a link here for you to read a blog post by www.allaboutestates.ca summarizing the case and how it was resolved.

Clients often ask me how an executor will divide the household and personal goods among the children, and I'm always happy to give some suggestions on how to avoid a dispute. Depending on the number of children, the number and value of the items and the personalities involved, there are some options. I've listed a few below. You'll note that sticking a piece of masking tape on the bottom or back of items with someone's name on it is NOT on the list, as that is not legally effective.

1.  Give some items that you don't need to the children while you are alive.
2.  Hold a family meeting to talk about your estate plans and tell the children how you plan to divide up the items (followed by either #3 or #4 below). Give them a chance to provide you with some feedback that you might use to re-think your decision.
3.  Prepare a handwritten list of who is to get what and keep it with your will. It might be helpful to talk to your estate planning lawyer about this so that you get the right form for your list. Your lawyer can also give you some guidelines about doing the list properly. For example, a list like this should NOT include sums of money.
4.  Include some of the items in your will as specific gifts to certain people. Normally people would only include gifts that are important enough that they won't change their minds about them.
5.  In your will, give your executor the discretion to settle disputes about who gets the household items. This might seem unfair to the kids if one of the people fighting over an object is also the one who gets to settle the argument, but someone has to have the ability to put an end to it.
6.  In your will, direct that everything is to be sold and the money split equally. This is pretty drastic but sometimes parents feel it's the best way.

Most of my clients have told me that preventing disputes among the children is one of their main estate-planning goals. Thinking about the personal and household items and dealing with them clearly and thoroughly in your documents will help you reach that goal.

Do I attach a list of specific gifts to the application for probate?

Although most assets are given away in a Will, many people choose to make (in addition to the Will) a list of specific personal or household items that they want to give to certain people.  For example, a woman might wish to leave her wedding ring to her daughter.

A list like that is a separate document from the Will. They are usually handwritten by the testator. I was recently asked whether the executor must include the list along with the Will when the executor is applying for probate. The answer can be either "yes" or "no", depending on the facts.

The executor DOES have to include the list (which is legally called a Memorandum of Personal Effects) if:

•  the testator made and signed the list before he/she signed the Will, and
•  the Will specifically refers to the list by saying that it is incorporated by reference.

The fact that the list is incorporated by reference means that it is included as part of the Will even though it was done before the Will document. Because it's now legally considered part of the Will, the executor has to include it when he or she probates the Will. 

Many lists of specific gifts are NOT incorporated by reference. If you make your list after you make your Will, it is not incorporated by reference. If the Will doesn't refer to the list, it isn't incorporated by reference. The non-incorporated list is very popular because it is so flexible; the testator can change the contents of the list as many times as he or she wishes without having to change the Will. In these cases, if the Will says anything about a list or Memorandum, it probably says something like "I may make a Memorandum giving specific items to certain people."

If an executor were to apply for a Grant of Probate on an estate that had a Memorandum that was NOT incorporated by reference, he or she likely wouldn't be required to include the list in the application, but should probably do so anyway, barring unusual circumstances. It's best to give the judge and the residuary beneficiaries the whole picture of the estate. If the Will says that the testator "may make a Memorandum" but one hasn't been found, include a sentence in your application for probate that states that you searched for a list but didn't find one.

This post isn't intended to be a recommendation of any kind about which type of list you should make, if any. There are plenty of reasons to use one or the other. I'll leave that for another day. Today's post is intended only to give executors some ideas about how they might deal with a list/Memorandum during the probate application.

Conducting an estate sale

Most executors have to deal with selling some personal or household items for an estate. As most executors are new at that  job, they may have questions about how to proceed. This post will explore ideas for selling those items properly, without short-changing the estate or getting the executor into trouble.

When talking about selling items, I'm assuming that the executor has already given away any specific items that were left to specific beneficiaries. Obviously if a Will or Memorandum of Personal Effects requests that an item be given to someone, that item isn't going to be sold unless the beneficiary has already passed away. Before you start selling anything, make sure that you have read the Will carefully, or your lawyer has done so on your behalf, so that you do not accidentally sell someone's inheritance.

The first step is to determine what you're dealing with. Is the deceased's home full of valuable artwork, antiques, jewelry or collections? Is it a rural property, with equipment, vehicles and tools? Is it your average home with regular furniture and possessions, but nothing of outstanding monetary value?

The majority of estates don't need a formal estate sale, and I'll get to more suitable options in a moment. For a home that is full of valuables, or a rural home with a lot of equipment, it just might be a good idea to hold an estate sale. The best way to do this is to contact an auction house in your province (look up "auction" on google or in the Yellow Pages). Try to give them an idea over the phone of what you're dealing with. For example, did the deceased leave a box full of antique jewelry? A set of eight original oil paintings? A rebuilt 1947 car?

If the auction house thinks that an estate sale is the way to go, they'll send someone out to take a look at the items. They will probably give you an estimate on what price could be expected, and set a general timeline for a sale. The sale might be conducted right from the deceased's home, or the items might be taken to the auction house for inclusion in a larger sale there. Make sure you get a detailed list and signed receipt for any items taken.

When using an auction house, be prepared for the fact that they will probably advertise the sale in the local paper (they don't use the deceased's name). Also, remember that they will take their pay out of the sale proceeds before handing the net amount to you.

As mentioned earlier, the majority of estates don't need to go through an estate sale. The executor will be responsible for finding other ways of selling the household and personal goods. Some common ways of doing this are:

- hold a garage sale
- sell goods privately to beneficiaries, family members, friends etc - remember to sell at fair market value
- advertise goods on eBay, in newspapers, etc.
- take unusual items (e.g. a hockey card collection) to a dealer
- sell to second-hand shops

There are always items that are not worth much money. These might be small appliances, used clothing, used books, used DVDs, etc. If family members don't want these items and the executor can't sell them, they can be donated to a charity such as Goodwill. If they are of little value, don't expect a charitable receipt.

The executor should keep careful records of items going out and money coming in. Remember that personal items are more likely to be the cause of a family fight than money or property. The executor should keep any bills of sale, receipts, inventories or charitable receipts.

All money generated from any of these sources should be deposited into the estate account. Rather than the executor taking out his expenses (such as shipping)  and depositing the rest, it is safer and more transparent to deposit all of the money and then make a separate payment to the executor for expenses.

Looking a gift horse in the mouth

This is a really good article in the Wall Street Journal about dealing with collectibles, art and other household objects. Click here to read the story.

(Attached photo by Jemal Countess/Getty Images is also taken from that story)

Do I just get the house, or the contents of it as well?

Smooth administration of an estate starts with a good Will, but that doesn't help much if you're the beneficiary or executor of an estate with a Will that doesn't give you enough information. And to be frank, many executors and beneficiaries include all kinds of erroneous assumptions and leaps of logic that muddy the waters even when there is a pretty decent Will.

For example, I see assumptions come into play when a testator makes a Will which leaves a house to a beneficiary. Some people reading the Will assume that a house comes with everything in it so the testator must have intended that to happen. Others assume just the opposite and conclude that if the testator had wanted the contents of the house to be given to someone, he or she would have come right out and said it. Another completely false (in law) assumption that I see come into play pretty regularly is the idea that when a testator passes away, each item that he or she owns will be returned to the person who gave him or her that item in the first place.

Keep in mind that when dealing with the personal and household belongings of someone who has passed away, it's not always the monetary value that concerns the beneficiaries. Sometimes it's the sentimental value, because a beneficiary wants some kind of keepsake of the person who died.

So when a Will leaves a beneficiary a house, does the beneficiary get the household contents as well? First of all, look at whether that testator has a spouse (legally married or otherwise) who lives in the house with him or her. If so, assume that with very few exceptions, all of the household contents are jointly owned between the testator and his or her spouse, and that the spouse will own all of the contents. (For the sake of concentrating on personal items, I'm not going to go into the obvious Dower Act issue that is staring me in the face here.)

Then look at the wording in the Will.

First of all, a properly drafted Will will say "contents" if the contents are to be included in the gift. However, if that word is missing, you have to look further.

Does the Will say that the testator is transferring "the title to the property"? To me, that indicates that the household contents are not intended to be included.

Does the Will deal with household contents and personal items in a separate clause of the Will? In many Wills, there is a paragraph that says how the testator wants to divide up the items. This is usually not a list of individual items, but a general statement that says something like "my household and personal goods are to be divided among my children as they agree". If that kind of clause is included, it would suggest that household contents are not to be included in the gift of the property.

Has the testator made a Memorandum of Personal Effects, or other informal list of certain items to be left to specific people?

If the Will doesn't say anything helpful about this issue and no Memorandum has been found, it is possible for the residuary beneficiaries of the estate to agree that the items in the house can be given to the beneficiary who is getting the house. (If I were the executor in that case, I'd get that agreement in writing).

Keep this in mind when you are having your own Wills prepared. Many people think that the shorter and simpler a Will is, the better. However, if you include just a few more sentences such as instructions as to what to do with the personal belongings, things will run smoothly and properly after you've passed away.

How do I make a list to give away personal belongings?

Most people probably think that estate fights are about big sums of money. Some are, of course. But many are not really about monetary value at all; they are about who gets which personal items. These items, such as jewelry, artwork, photo albums, family heirlooms and almost anything else owned by an individual, have huge sentimental value.

To avoid disputes among their children, many people like to specify that certain items are to go to specific people. For example, a woman might leave her wedding ring to her daughter. A man might leave his tools to his son. (These are by far the most popular items found in lists!)

There are two ways to do this. There are pros and cons to both ways.

The first way is to list the items and their recipients in your Will. The benefit of including them in your Will is that the list will have the same legal force as the rest of your Will. There should be no disputes, assuming your Will is valid. The downside is that if you change your mind about giving that gift, or if you sell it or dispose of it during your lifetime, your Will no longer reflects your instructions. You might end up changing your Will numerous times, which could get expensive and time-consuming.

The second way is to make a separate list that you write yourself. The benefit of writing your own list is flexibility - you can change it as often as you like. The downside is that a list like this does not have the legal effect of a Will. It is only valid as long as the residuary beneficiaries agree to it. The other downside is that people can often create a great deal of confusion by not being clear about which items they mean (such as saying "my ring" when the person owns several rings) or not being clear about which individual they intend to have the item.

It is possible to make a list before you sign your Will, then make the list part of your Will by mentioning it specifically in the Will. This is referred to as incorporating the list by reference. This gives the list legal validity, but you would lose the flexibility to change the list whenever you wanted to.

The correct name for a list like this is Memorandum of Personal Effects. When you talk with your estate planning lawyer, he or she will address the question of personal effects with you to determine your wishes and to help decide which method would be most appropriate for you.

If you want to make a Memorandum of Personal Effects of your own, follow these tips:
- do not call the document "will" or "codicil". Call it "memorandum of personal effects"
- sign and date the document using your usual signature
- you do not need witnesses
- do NOT include gifts of money
- do NOT include gifts of land, buildings, or mineral rights
- identify people using full names
- identify people using their relationship to you (e.g. "my nephew, Joey Butler")
- describe each item being given away as fully as possible, e.g. identify the artist who painted a picture you're giving away, or describe which stones are set in a ring. It's not a good idea to say, for example, "the tools I bought at Canadian Tire" because nobody but you would know where you bought them.

If you want a form that you can use, I can provide one on request if you email me or reply to this post (I won't publish your name and contact information).

Giving away your personal belongings

A question that I am asked pretty often is whether a person should list items in a will that they want to give to specific people. The question is about personal belongings like jewelry and family heirlooms.

There are a number of home-made ways that people use to direct who should have certain items after they have passed away, none of which are legally effective. One of the most popular ways is to stick a piece of masking tape on the back of each item and write somebodyès name on it. As I said, this is widespread but not legally effective.

There are two general ways in which you can leave your personal items to certain people. One is by naming them in your will and the other is by leaving a memorandum ( or list) in addition to your will. There are pros and cons to both choices and ultimately the decision is yours as to which method you think is most effective.

If you name the specific items and the specific people in your will, the upside is that the gifts are as legally binding as the rest of your will. The downside is that if you want to change your mind because you no longer own the item or you no longer want that specific person to receive it, you have to change your will. If it happens frequently, it can be expensive and inconvenient.

If you use a list- legally called a Memorandum of Personal Effects - the upside is that it is quick and easy to change it whenever you want to. The downside is that a Memorandum is not legally binding the way a will is.

A Memorandum is intended to be used for household and personal goods (jewelry, artwork, photo albums, heirlooms, furniture, collections, and any items with sentimental value). It should not be used to give away money or land.

If you need to know more about using a Memorandum, discuss it with your estate planning lawyer. Talk about which method (i.e. will or memorandum) would be more suitable for you.