When I meet with clients on corporate, conveyancing or other legal matters, they almost invariably ask me about wills and estates. Clients often hope that they have no estate planning needs – because they have already arranged for joint ownership with their parents / children / spouses.
Joint ownership is a self-help estate planning mechanism I see regularly in the Fraser Valley, as residents are often heavily invested in real estate. The basics of joint tenancy in real estate are widely understood and it is relatively cost-effective to arrange, making it an attractive DIY estate planning approach. Regrettably, it is also often recommended by seemingly knowledgeable and trusted sources, who do not understand the negative implications of joint registration in certain circumstances.
In many cases, SEVERAL of the following drawbacks will apply to the use of joint ownership as an estate planning mechanism:
- Taxes – Distribution as a Triggering EventWhen you transfer or sell certain assets, the proceeds of sale may be deemed to be income under the Income Tax Act (Canada) and therefore taxable. The Act does not permit transfers at less than fair market value, unless you qualify for a specific exemption – transfering a portion of an asset to a child may therefore trigger the payment of taxes;
- Taxes – Death as a Triggering EventWhen your asset is sold following your death, the proceeds of sale may be deemed to be income to your joint owner under the Income Tax Act (Canada). This is common if the asset was your principal residence but not your joint owner’s principal residence;
- Taxes – Income Attributed to Original OwnerWhen you transfer an asset to a spouse, income will often still be attributed to you under the Income Tax Act (Canada);
- Exposure to CreditorsWhen another person is on title to your asset, their creditors may be entitled to register judgements against the asset and may even become entitled to force a sale of the asset;
- Loss of ControlWhen someone else holds an ownership interest in your assets, you will no longer be able to sell them or refinance them without that other person’s express consent;
- Potential for LitigationWhen multiple other parties share title of an asset, it becomes less likely that they will all agree to sell at the same time or on the same terms (both before your death and afterward). When one beneficiary is on title in order to facilitate for others, there is also a risk that they will NOT share as you wished. Even when a beneficiary does share, there is a risk that other beneficiaries will take exception to how the asset was handled, the price it was sold for or the management of the funds following a sale.
Despite these drawbacks, joint ownership can be effective in the context of a broader, well-planned approach to your will and estate distribution.
Document preparation services and DIY Will preparation kits can make estate planning seem so simple! Unfortunately, if you read the fine print, these products directly warn against the misconception that your needs can be met merely by filling in the blanks. This is true whether you pay to have someone fill in a computer form after a brief interview with you, or whether you complete a form yourself.
The truth is, details matter when it comes to your estate plan. Circumstances can easily appear similar on the surface. But, what worked well for your neighbour’s family may turn out to be disastrous for yours. Worse, once you have obtained a false sense of security by purchasing a pro forma (template) will, failings in these documents are unlikely to be discovered prior to your death or incapacity.
Those you intended to protect are likely the ones who will discover shortcomings in your DIY documents. Not only will they have to address the legal and financial consequences of these failings, they will have to live with the emotional fallout of any unintended consequences (including litigation) of your so-called, ‘simple will’.
From the Trenches
I have seen many problematic template wills. Here are only a few examples:
- A woman with adult children and a recent second marriage named her husband as Executor on the first page and provided for funeral and interment on the second page. The Will was properly executed and witnessed. Sadly, she neglected to include the important clauses that usually make up the body of a Will, identifying her plans for distribution of assets.
- A widower with one disabled child and one child who was estranged named a friend as Executor and Trustee, with all assets to be held for and used to benefit the disabled child. He signed his will, but neglected to have witnesses present to attest to his signature, as is required under British Columbia law.
- A widow who previously loaned more than $150,000 dollars to her eldest daughter for the purchase of a home left all of her assets to her other children, but failed to mention the loan or her daughter’s refusal to repay it, leaving the impression that she had either forgotten the daughter by mistake or unreasonably disinherited her.
- A man with one child of his own, who had also raised the son of his deceased common-law spouse, left his assets to “each of [his] children” who survived him, without defining the term children in a way that included his step-son. His deceased spouse had left everything to him, believing her son would inherit upon her spouse’s death. This disastrous error is far more common than one might expect – your estate planning professional must spend time with you to learn the legal nature of your family relationships.
The Fine Print
A prominent American document production company has recently entered the Canadian market, selling corporate documents. They are preparing to launch a line of estate planning documents. In addition to the published caution on their US based website that more than 80% of consumers will fill in questionnaire forms incorrectly or incompletely, the company’s disclaimer says, among other things:
- They are not responsible for the contents, products, services or use of their website;
- The information they provide is for general information, is not exhaustive and does not replace competent legal advice;
- No legal representations or warranties are made by them regarding the consequences of using their forms;
- You (and your loved ones) bear all risks associated with using their forms and they are not responsible for any losses suffered by you.
Wow! Not only are lawyers responsible for the services they provide, those services are specific to you and are intended to thoroughly cover your needs and wishes. Lawyers are not infallible, but they ARE required to carry practice insurance. At McQuarrie Hunter LLP, we stand behind our services and we offer real peace of mind.