July 15, 2008, 6:00 am

Basics of Estate Planning Part 1

by: The Financial Blogger    Category: Financial Planning
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Yesterday, I just came back from a 3 weeks vacation period. It feels very weird to write in the bus again. In fact, it is weird to write period! It’s been 3 weeks that I didn’t write any post (I’m always at least 2 weeks ahead). Now, I only have one post remaining in my draft so I better get to work! I decided to write a few article on estate planning upon the suggestion of Million Dollar Journey. The topic of death is already taboo and preparing its impact on your finance is probably the last thing you want to hear about.

However, ignoring the impact of passing away on your personal finance can have a dramatic result for your spouse, children or other close relatives. Estate planning is one of the 7 fields of financial planning and probably one of the most important.

You need a will

The very first thing to consider in Estate planning is definitely what you want to happen at the moment of your death. The will is a legal document which contains (among other things) the way your assets will be split up.

I don’t need a will; people around me know what do to

They may or may not, in fact, if you pass away without a will, it will not be up to them as your assets will be distributed according to the government where you lived. For example, in Canada, a common law spouse has absolutely no rights on anything that is not under his/her name.

This means that if you live for the same person for 20 years, have kids but are not married and you pass away having the house under your name only (even though you have been splitting payments for all those years); your children will receive everything and your spouse will be left with a big “sorry”. I am not sure this is what you want for the love of your life.

Wills that are not valid:

There are several reasons why a will could be disputed in court. When money is involves, trust me that most people make sure they get what they think they deserve. This is why it is important to make sure that your will is valid. Here are a few examples when a will is not valid:

– When it’s written with the help of technology (on a computer for example).

– When you have less than 2 witnesses (for “will kit”) or if the witness are on the will.

– When there is a more recent version of your will. The latest version prevails over all the other will.

– When you are not mentally able to write or sign a will, if you have been influenced or forced to do so by a third party (duh!).

In my next post on Estate planning, I will outline the advantages and disadvantages of those three ways.

Common ways to write a will

There are 3 ways to write your will:

#1 Write your own by hand.

#2 Buy a “will kit” at a library and have it witness by two people that are not on the will.

#3 Have a lawyer/notary (depending on where you live) writing it for you.

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This is definitely a good start. Every time I sit with a client, this is one of the first things we get taken care of (Through the PLPP Program anyways).

It’s $35 to get started, once they get the card they make a phone call and get a basic will as part of the plan. Once they get the will (takes a few days), they can drop it. It costs a little more than a “will kit” but is done by lawyers for far less.

“Will Kits” are usually around $20-$40 down here, lawyers are usually about $500-$1500 as well. So it comes out all good.

Having a will is also VERY important if you have young children. If you do not state who is to take care of them in the even of a mutual death, the state gets to decide.

Thanks for the primer FB. Can’t wait to read more about it.

Great start, FB. I look forward to reading your next instalment.

Just a few minor notes, though- first, it’s not quite accurate to say that “in Canada, a common law spouse has absolutely no rights on anything that is not under his/her name”. This varies from province to province, and there are some rights for common law spouses, but they can be difficult to establish and enforce. But your point remains- people NEED to have a will.

I’d make a similar point on your notes about when a will is not valid- there is some variance between provinces on this. For example, in NL the use of technology doesn’t invalidate a will, provided that it is properly witnessed, and a beneficiary of the will can serve as a witness, provided that the will can be proven otherwise. I’m not sure what the law says in other parts of Canada, but my rough recollection is that it is similar.

I will actually be posting fairly soon on the topic of writing your own will- be sure to check it out!

by: The Financial Blogger | July 15th, 2008 (6:14 pm)

Hey Max,
You are right that I should have mentioned that I write from Quebec. Rules and laws are different in every provinces. Nonetheless, I wish you good luck if you try to get your right on your deceased common law’s assets 😉

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You provided here a rather useful information. As a rule most of us prefer not to think about our passing away not to bring disaster upon ourselves. That is why we try to postpone estate planning and making a will in every possible way. Though if we won’t it may lead to unfortunate concequences. Say, probate, for example. It is a public procedure and (just imagine!) the value of your assets will become a public record. And all this turmoil may make the sorrow of our loved ones much deeper.

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My Aunt and her husband have left all of their estate to me. My aunt husband has 2 children (from his 2nd marriage) who will be shocked to find out they are getting nothing. They did not treat their father well during his life , so not a suprise. Can these 2 individuals have any chance of interrupting the wishes of my aunt and husband?

They may be able to contest the will. In which case, if a satisfactory result can’t be met, could result in an estate auction. My wife went through this shortly after getting married. Not a pretty sight.

Thanks Richard for your quick reponse.

What I maybe was not clear about is that their house has been sold and most belongings donated with some in storage. I was referring to all their financial assets which is now in the lawyers hands as the executor. Their wishes were to donate half of their money to a charity they indentified, and half has been left to me-as per the will. To my shock…despite the close relationship we had. It is a large sum so the husbands children are wanting their hands on it (once he dies) which has been going on for years before my aunt passed away recently. Anyway, I will be speaking with their lawyer soon (who set up the will) and things will hopefully get sorted out. Leanne

Depending on the local laws, if the husband is still alive, he is the only one that can contest it. His kids have no biological claim to it unless he inherits it. This is my understanding and I am not a lawyer.

If the husband does challenge it, the donation will also be in jeopordy since the money stays apart of the estate until all things are settled.

If he is a decent person, he will let final wishes stand. Then again, he probably knew about it to begin with.

My consolenses and food luck. A friendly tip, do get with a local financial person to help you make eat use, just don’t mention you have it till you are comfortinle enough with them to know they won’t screw you over. There are plenty of crooks in this field that operate legally.

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A will is a good start but in California if you have a home or personal property assets totaling over $100,000, you will probably also want to create a trust so as to avoid Probate.