By Jennifer Pinarski
This Q&A with wills and estate consultant Lynne Butler can help kick start the conversation you need have with your partner and children’s guardians.
Q: Why do you think young families don't have wills?
A: Young parents think they'll have lots of time to make a will before it's needed. Of course, we all hope that that's true, but a responsible parent will make sure that if the unexpected happens, they are as prepared as they can be. The truth is, anyone can be killed in a plane crash or car wreck, no matter their age.
Another reason is that younger people think they aren't rich enough to make wills. They may have started a business or bought their first home, and because they don't have much disposable cash, they mistake this for meaning they "have nothing".
The reality is that every parent should make a will. The will you make in your 20s likely won't still be suitable in your 40s, but that's fine. Your children will be older, and your financial situation will have changed, so it would be time to make a new will.
Q: Why is having a will important for families with young children?
A: The main reason is that young children will need someone to step in to act as legal guardians. If the parents don't name someone, the court will choose someone from among those who apply. If nobody applies, then children become wards of the province.
A common mistake is that parents believe that the grandparents will apply to the court to become guardians. Unfortunately, both sets of grandparents may apply, leading to a court fight (during which time the kids are in foster homes and generally no longer living together). This happens more than people realize, because each set of grandparents is afraid of losing touch with their grandchildren.
In addition to actually having the will document made, there is value in going through a proper estate-planning session. They will have the chance to talk about how all the pieces of the estate planning puzzle—the will, power of attorney, health care directives, life insurance designations, ownership of the family home, RRSPs, RESPs, debts, taxes—fit together to make a proper plan.
Second Marriages: Proper will planning is doubly important for individuals who are in a second marriage, and even more so if there are minor children of both the first and the second marriages. Parents need to understand the legal obligations arising to children, spouses, and former spouses and how to balance those competing interests.
A common mistake is that a person in a second marriage passes away, leaving all to his/her second spouse and nothing to the children of the first marriage. If the children are minors, there will be a court challenge. Even if the children are not minors, there is a risk that their step-parent will not leave anything to them, leaving them disappointed and bitter towards their parent who failed to make a will to protect them.
Q: What factors should parents consider when writing their wills?
A: In addition to guardians and alternate guardians, parents need to carefully consider the following:
Choice of executor
My personal feeling is that because the executor has full control over the minor children's money, it should not be the same person as the guardian. This allows for two sets of eyes on the funds and less opportunity for embezzlement of the funds. Unfortunately, it has been proven a thousand times over that being related to someone is not a guarantee that the trustee will be tempted to use the money for personal purposes.
These are essential for families with minor children. The parents can use trusts to determine:
Life insurance designations
Most commonly, spouses name each other as their life insurance beneficiaries, with the kids to receive the insurance money if both spouses have passed away. Parents need to compare this arrangement with designating the estate as the beneficiary. For example, if the insurance designation is directly to the children, each of them gets their share on their 18th birthday in one lump sum, and there is no ability to use the funds to support the children while they are minors. Compare this to putting the insurance funds into the estate, where the will determines the age of inheritance, and controls the ability to use the funds.
Power of attorney (for property) and health care directives
These are as essential as wills are. As I said above, anyone can be involved in an accident, and this could result in a parent being left hospitalized or in a coma. Parents of young kids need to ask themselves what would happen in the event of a major accident where one parent was killed and the other was in a coma. The will would not kick in for the one who is in a coma.
Nobody would have custody of the children. There would be nobody to pay the mortgage, sign permission slips, register the car, look after the pet, or even buy groceries. Nobody could legally get access to the parent's bank accounts without getting a court order.
Again, younger parents think these documents are for old people, but they are extremely important for anyone who has children to protect.
Q: "Will kits" are widely available, but should they be used?
A: Will kits are fine for people whose estates are very simple. Unfortunately, almost everyone thinks his or her estate is very simple, and most of them are wrong. They are not aware of the potential legal land mines, and are therefore misled into thinking that none exist.
Nobody should use a will kit if they have minor children, because the trusts for the children need to be tailored to fit each family. There is no one-size-fits-all for trusts, because each family has unique assets, unique wishes, and unique needs. The parents of minor children must have legal advice so that they don't make mistakes that their children will pay for after the parents have passed away. Neither should will kits be used by anyone who owns a business, has a disabled child of any age, has a family cottage, or is in a second marriage.
Lynne Butler, BA LLB TEP, is a Wills and Estate Consultant in Newfoundland and the author of How Executors Avoid Personal Liability. Find her at estatelawcanada.com